Written by DR
If you're new here, subscribe to my RSS feed to easily see all the latest money management tips, tools and resources. Thanks for visiting!
That’s right, the words helpful and IRS sometimes go together. The IRS has produced a chart showing whether a rollover between 401(k), 403(b), 457(b), IRA, Roth IRA, SEP IRA and SIMPLE IRA accounts is permitted. Clicking on the chart or here will download a pdf version of the chart. The chart includes hyperlinks to additional resources on the IRS website. Read the rest
Written by DR
If you have self-employed income in addition to your regular job, can you contribute to a SEP IRA even if you have a 401k at work? This question has hit home for me this year because I’ll have income from this website. While I’ve decided that the income is not enough to warrant opening an SEP-IRA, I still want to understand what the qualifications and limitations are so I can plan for next year. To get right to the point, the answer to the question is yes. Here are the details.
If an employee participates in his or her employer’s retirement plan, can he or she set up a SEP for self-employment income?
The IRS has answered this very question: “Yes. A SEP can be set up for a person’s business even if he or she participates in another employer’s retirement plan.” This answer comes from an IRS FAQ about SEP plans. That’s good news for bloggers, many of whom are employees with 401k plans in addition to self-employed income.
What are the tax advantages of an SEP-IRA?
The tax advantages are similar to a 401k. You can deducted your contributions and your earnings grow tax deferred. You will be taxed on withdrawals from an SEP-IRA.
What’s the maximum contribution to an SEP?
In 2007, the maximum contribution to an SEP-IRA is the lessor of $45,000 or 25% of your ‘eligible compensation.’ These limits apply to all contributions to defined benefit plans, which means you have to take into account 401k contributions when determining the maximum contribution to an SEP-IRA. So if you contributed $15,000 to a 401k, your maximum SEP-IRA would be $30,000 or 25% of your ‘eligible compensation,’ whichever was less. If you are self-employed, however, the definition of ‘eligible compensation’ gets more involved, the result being that the maximum percentage is 20% (not 25%). You’ll find more details in IRS Publication 560.
