Some Basic Sep Ira RulesSEP IRA refers to the Simplified Employee Pension Individual Retirement Account. Establishing a SEP IRA is not at all a tough task but there are some basic SEP IRA contribution limits that are to be followed. Let's have a look at the SEP IRA rules pertaining to Sep contributions. SEP IRA contributions are a part of the profit- sharing plan. The employer is allowed to contribute a maximum of 25 % of the employee's wages to the employee's SEP-IRA account. For example, if an employee earns $20,000, the employer can make a maximum SEP IRA contribution of $500 to his account. However, in the case of self employed individuals, the SEP limits are a bit complicated. The self employed can contribute a maximum of 18.587045 (approx. 18.6%) of the net profit. In case of self employed individuals, the SEP IRA limits for the contribution are not computed on the net profit but on the net profit adjusted for the deduction for self employment tax. After calculations you would find that the adjusted net profit is approximately 93% of the net profit. Thus the sep contribution rules for the self employed are slightly stringent and complicated too. Apart from the rules pertaining to the SEP IRA contribution, there are other rules as well that need to be followed. A company has to take SEP IRA for each of its employees and no single employee can be left out. The employees should be informed about the establishment of SEP IRA and they must be provided written documents of the same along with the complete information. It must be seen that all the employees fulfill the eligibility criteria to get entitled for SEP IRA. As for the distribution or withdrawal rules, you must remember that depending on your SEP plan, if it is deferred- the withdrawal amount would be taxed. Also, if you sometime plan to roll over your SEP IRA account in to a Roth account or 401K account then you would have to pay the taxes as well as the fees for the same. Thus, SEP IRA could benefit you a lot but only when you follow the SEP IRA rules without failure. As the norms are stringent and following them religiously would only get you maximum benefits with minimum hassles. So, If you are planning to get going with SEP IRA, just know all about the rules before you set out to get it established. |