| The SEP-IRA is a very interesting version of the | | | | have been paid at least $450 dollars in wages in the |
| original IRA designed for individuals. The SEP-IRA | | | | previous year. |
| performs the same function, but for business owners. | | | | The contributions to the plan are made by the |
| A SEP IRA is an abbreviation for Simplified Employee | | | | employer from the earnings of the employee. Rather |
| Pension Individual Retirement Account. It gets its name | | | | than putting it in his paycheck, it is deposited into the |
| from the fact that it is, actually, simple. It is intended to | | | | SEP-IRA. The maximum contribution is 25% of the |
| give small business employers and self employed | | | | total income of the employee. The maximum amount |
| workers an IRA that functions much the same way as | | | | that can be contributed in a year was set at $44,000 |
| a pension plan, but on a simpler scale. The SEP IRA | | | | in 2006 and will be adjusted for inflation in the coming |
| can also be rolled over into other forms of IRAs should | | | | years. The portion of the employees compensation |
| employment change and the owner becomes eligible | | | | paid into the plan is deductible from his taxes and will |
| for a different plan. | | | | result in a tax savings. |
| The administrative costs of a SEP-IRA are very low. If | | | | A self-employed person is limited to 20% of his |
| you are self-employed, there are generally no | | | | earnings. His maximum yearly contribution is around |
| administrative costs at all. One requirement of the | | | | 18.6% of his net profit as calculated on his |
| SEP-IRA is that if a business has employees then all | | | | self-employed worker tax return. The SEP-IRA works |
| of them must receive the same benefits. In order to be | | | | like a Traditional IRA when it comes to distributions. |
| eligible for employee participation in a SEP-IRA, the | | | | They are taxable at the rate in effect at the time of |
| employee must be over the age of 21, and he would | | | | the withdrawal and there is a penalty if any withdrawal |
| have had to have been employed for at least three of | | | | is made before the age of 59 and a half. |
| the last five years. The employee would have had to | | | | |