X hits on this document

795 views

0 shares

0 downloads

0 comments

315 / 367

WHERE DO YOU WANT YOUR MONEY TO TAKE YOU TODAY?

301

These plans require less paperwork than the more recognizable types of retirement accounts, thus making them easier for small business owners and self-employed workers to establish and fund. The SEP is more attractive to smaller business owners, but, there is no current regulation stating how big or small a business must be in order to adopt an SEP. Any business could offer its employees the opportunity to contribute to a SEP if so desired.

SEP plans offer the same type of tax treatment for all contribu- tions and distributions as other types of retirement accounts. Any contribution made by an employer on an employee’s behalf won’t be counted as part of that employee’s current gross income, and the employer may write off the contribution as a company expense. The interest and gains of the account accrue tax-deferred, and the SEP owner won’t have to pay any type of income tax on the account until distributions begin. Self-employed people who contribute to their own SEP may deduct their contributions on their tax returns. Techni- cally speaking, SEP plans aren’t considered qualified retirement plans, as 401(k)s are. Instead, they are classified as traditional IRAs that meet the tax law requirements to become SEPs.

Business owners who use the SEP for their employees may con- tribute up to the lesser of (a) 25 percent of the employee’s compensa- tion or (b) $40,000 (indexed in 2002). Other rules include immediate and 100-percent vesting for eligible employees of employer contri- butions, and contributions may be made any time before taxes are due. For example, you could make your SEP contribution for the year 2002 anytime before April 15, 2003. Employees may also withdraw any amount from their SEPs at any time. Because these are IRA accounts, they are owned and controlled by the individual employ- ees, not the employer. However, SEP IRAs are also under the same rules as traditional IRAs. That means all distributions will be 100- percent taxable to the IRA owner, plus a 10-percent early-withdrawal penalty if the owner is younger than 591/2 years old.

SIMPLE Plans The SIMPLE plan is relatively new, having been introduced in 1997. It comes in two forms: the SIMPLE IRA and the SIMPLE 401(k). SIMPLE plans allow eligible employees and self-employed workers

Document info
Document views795
Page views795
Page last viewedMon Dec 05 17:13:59 UTC 2016
Pages367
Paragraphs4568
Words116968

Comments