Is a SEP Plan Right For Your Business

A September, a special type of IRA . Under a September, the plan the employer creates an IRA account for each eligible employee, hence the name SEP - IRA . A September financed exclusively by contributions from the employer. Employees do not contribute to their SEP - make IRA retirement account . All the money that goes into a Sept. automatically belongs to the employee. Thus, the employee is entitled to his SEP IRA account to take money when it stops working for the company .

Any size business can a Sept. fix, but the September pension is usually used by the self-employed and small businesses with few employees . The SEP IRA rules dictate that if the company contributes to an employee , ( ie , the owner ) , then the company should contribute proportionately to all employees. With few exceptions , anyone who works included in the Sept. However , for now you can exclude from participation in the plan in September everyone :

o Has not worked for the company for three of the last five years .

o Has not reached the age of 21 during the year for which contributions are paid.

o Received less than $ 450 in fees ( depending on the cost of living adjustments ) in the course of the year .

SEP IRA contributions to each employee for 2004 may not exceed the lesser of $ 41,000 or 25 % of wages for W2 recipients ( 20 % of income for sole proprietors ) . Limiting the Sept. IRA contribution goes to $ 42,000 for 2005 , and is subject to cost of living adjustments for later years . SEP - IRA rules do not provide for additional catch-up contributions for those 50 years or older .

A growing number of self-employed people are leaving the SEP - IRA for a newer type of retirement plan called the Solo 401 ( k ) or Self-Employed 401 ( k ) . The two main reasons for the switch are 1 ) they are generally much more contribute to a Solo 401 ( k ) then they can include a Sept. IRA , and 2 ) Loans are allowed under a Solo 401 ( k ) , while loans are prohibited under a SEP - IRA .

Example : Henry , age 52 , a broker received compensation of $ 60,000 income as an independent in 2004 . In 2004 he was able to contribute to a Solo 401 ( k ) versus a maximum of $ 11,152 under a Sept. IRA . A maximum of $ 27,152

However , the Solo 401 ( k ) do not work for companies with employees . So , if your company is planning to hire employees or currently has a few employees , the SEP IRA may be your best choice as a retirement plan that is inexpensive and easy to operate .

Daniel Lamaute , CEO of Lamaute Capital , Inc. specializes in setting up retirement plans . You can visit to access a free calculator that will help estimate your maximum contribution may be under different plans.