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RETIREMENT OPTIONS Part 1:� The SEP Account� 1 2
by Grant Bynum� � � �

Last week, we gave you a broad overview of your options for retirement accounts for those of you who are self-employed.� Starting this week, we want to go a little deeper into each of the plans.��

This week, we will be examining the SEP account, which is one�of the most popular plans of all for the self-employed.

Pay attention if: You are self-employed.
The Plain� Summary The SEP account lets you invest up to $24,000 per year for retirement.�
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What exactly is an SEP?


The SEP (Simplified Employee Pension) plan is an account that you can use to accumulate money tax-free until retirement.� In essence, you contribute to this account each year and interest (i.e. earnings) accumulates without the federal government touching it...until you retire.� But, at that point, the chances are that it will be taxed at a lower interest rate...thus saving you money!

When would the SEP be a good choice for me as a business owner?
If you
are self-employed and have no employees of your own, then SEP is a good option for you.� You can actually be a sole proprietorship, partnership or LLC.� If you do have employees, but can't contribute to an SEP for them for whatever reason, then you should select a different type of plan (see the next few issues for more ideas).� This is not a good plan for you if you make your money off of investment income.

How do I set an SEP up?
A brokerage service (Charles Schwab, Fidelity, etc.) , a bank, a mutual fund company...or even an insurance company...can set one up for you!� It is really very easy to set one up...it is similar to opening any other type of account (like a checking account, etc.).

What types of investments can I apply the contribution to?��
Once you put the cash in the account, you can buy mutual funds, stocks, bonds, CDs, etc.�
The range of choices is usually limited only by the company that you use to set up the account.

How much can I put in each year?
As a self-employed person, you can contribute up to 13.04% of your business' earned income up to $24,000 (whichever is lower), into this account every year.� Notice that I said 13.04%...not 15% like it says in the tax code.� The "15%" figure is based on net earned income AFTER you have taken out the SEP deduction.� So, ignore it!� Also, notice that I said "earned income."� This means that you must contribute from profit from your work...not interest income, capital gains, etc.

Do I have to contribute towards my employees as well?
Obviously, you can contribute to your own account, as described above.� However, if you have employees of your own, you must contribute to all employees who meet all of the following criteria:

  • are over 20 years old�

  • have been with the company at least 3 out of the past 5 years�

  • make over $400 per year.

So, you have employees, but you can't contribute, select another type of plan.

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