401k
401k Information

Sep 401k

The Simplified Employee Pension 00004000 (SEP) retirement plan is often touted by banks as a simple and effective way for self employed individuals and small business owners to save for retirement. However, you should weigh the pros and cons of the SEP retirement plan carefully before deciding to open one.

The point that’s usually considered the biggest perk of having a SEP retirement plan is the fact that you can reduce your taxable income even at the last minute. For example, even if you open up an SEP plan in 2008, you can make a contribution for 2007. You can open up an SEP plan at any point up until the tax income return.

Another perk of the SEP retirement plan is that contributions do not have to be made every year and are made by the employer only. Furthermore, employees of employers that have high turnover rates are not eligible for SEP contributions. There are also no employer filing requirements.

However, there is also a downside to having an SEP retirement plan. SEP plans are required to cover part-time employees who have worked three out of the five past years making 0 annually. If you contribute funds on your behalf you will have to do it for every employee that qualifies.

Another problem with the SEP retirement plan is its tax structure. The contributions are tax-deductible but the earnings and withdrawals are taxed. This means more paperwork for you in order to report everything to the IRS. Furthermore, you will ultimately be paying more in taxes since tax rates will probably be higher and you will most likely be in a higher tax bracket at retirement.

Most importantly, when it comes to delivering returns, SEP plans are lacking. The most lucrative investment plan out there is the self-directed Roth IRA. Self directed Roth IRAs can be managed by a company that is set up to help people self direct their accounts. These companies can guarantee to double or even triple your returns by investing your assets in real estate.

The SEP retirement plan, like a traditional IRA or 401k, is limited when it comes to investment options. On the other hand, self directed IRAs are much more flexible and offer a much wider range of investment options.

The best investment venue to date is real estate because it is lucrative, stable, and low-risk. That is because its value tends to increase over time, it is insured against common forms of loss like natural disaster, and there is always a demand for homes and land as long as prices are affordable.

In order to capitalize on that demand, there are companies out there that buy up old homes in neglected urban areas, renovate them, and resell them to working-class families. Since they charge affordable prices, the homes are bought quickly and there is even a waiting list of qualified buyers. The whole process takes 4-6 weeks so your assets can be invested and re-invested in the same way.

Do yourself a favor and weigh your options carefully. If you want to maximize your returns, pay less in taxes, and have more control of your account, you should roll over to a self directed Roth IRA. An SEP retirement plan may seem like an easy option initially but when you look closer, there are many downsides to having one. Instead, focus on self directing a Roth IRA so you can save money and increase your returns substantially.

Frequently Asked Questions

  1. QUESTION:
    My small business plans on hiring employees next year. Do I go with 401k or SEP IRA to maximize savings?
    When do you go with a 401k? When do you go with a SEP IRA? What are the pros and cons here? Thanks!

    • ANSWER:
      SEP IRA only applies to the business owners where as 401K is for the employees.

  2. QUESTION:
    Can I rollover a 401K into an SEP IRA after doing both W2 and 1099 consulting work?
    The past year I’ve been doing two consulting projects. One project is set up as W2 (no benefits) and the other is 1099. Can I rollover an old 401K plan into an SEP IRA and make a large contribution (18%)? Does the W2 work confuse this? Also, if I take a full-time position before the end of the year, does this disqualify me for an SEP IRA?

    • ANSWER:
      the rollover doesn’t count as a SEP contribution. So you can do both. W2 work doesn’t confuse it as they are two separate entities. You’ll be limited to 20% of your 1099 income in the SEP contribution regardless of how much your w-2 income. In fact the income is reported on two different schedules of the 1040. w-2 is on page 1 and 1099 income on the Schedule C.

      So long as the entitieis are nto related it would not disqualify you by being hired full time elsewhere.

  3. QUESTION:
    As a small business owner, can I have a Solo 401k and SEP IRA at the same time?
    I am currently employed full-time at a company but I have my own cleaning business on the side. I want to save money in 2007 while lowering my tax bill so I wanted to know if I can have a Solo 401k and a SEP IRA at the same time?

    • ANSWER:
      No. SEP-IRAs are not allowed if you have a 401k program, or even if you have access to a 401k program and dont avail yourself of it.

  4. QUESTION:
    Can you transfer old 401K into current SEP?
    I still have money in my 401K with my previous employer. I now want to roll that money into a current SEP that I have since I am now self-employed. Can this be done? Or should I just roll that money into a IRA?

    • ANSWER:
      A SEP IRA is a bit of a different animal. I think it would be cleaner to just roll the 401(k) into a separate IRA.

  5. QUESTION:
    Can I roll over my present 401K into my old SEP IRA?
    I have a 401K plan now with about ,000 in it.

    I need to roll it over into either my old SEP-IRA account or my non-deductible IRA.

    Can I roll my 401K into my SEP-IRA? I don’t really want to roll it over into my non-deductible IRA.

    I also don’t want to open a Roth-IRA as it’ll put me in a too high of a tax bracket.

    Thanks for any advice.

    • ANSWER:
      Yes, you can. One of the most significant pension reform provisions of The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) is the enhanced portability of Retirement Plans. Check out the link under Source.

      Hope that helps.

      PLEASE VOTE to avoid a TIE. On behalf of all of your responders, who take the time and effort to help questioners in this free Yahoo! community, THANK YOU in advance for taking the time to choose your “Best” Answer. We really appreciate it.

      DISCLAIMER: While the information in this response was obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. The opinion voiced in this answer is for general information only and it shall not be construed as tax, legal, or investment advice for any individual, nor shall it be considered a solicitation. Questioners are urged to consult with their professional advisers before making any decisions regarding their finances.

      Bradley Mann, CFP®, EA, BCE, CFS, AAMS
      Certified Financial Planner Practitioner
      Enrolled Agent | Admitted to Practice before the IRS
      Board Certified in Estate Planning

      “Providing sound retirement opportunities and tax-reduction strategies since 1985.”

  6. QUESTION:
    Should I start a SEP IRA or 401K for a small office of 12?
    I want employees to contribute to their own retirement in addition to having discression to contribute as an employer. Any thoughts or comments?

    • ANSWER:
      A SEP doesn’t allow employees to contribute. The employer contributes the same percentage of each employee’s pay to each employee’s SEP account.

      You may want to look at a SIMPLE plan.

      401K gives more flexibility, but will have some administrative costs associated with it.

      Some reading material to get you started:

      http://www.irs.gov/pub/irs-pdf/p560.pdf

  7. QUESTION:
    Employer wants to ditch 401K plan for SEP? – Confused.?
    Hi,

    My employer wants to ditch their 401K plan and instead offer a SEP plan, which has a maximum contribution of ,500 a year.

    They also toted a 401k SEP plan whereby we all make equal contributions and they would pay my bonus into the plan at the end of the year.

    I am a little bit confused, since I am not quite sure plan is best for me as an employee.

    Any feedback much appreciated :)

    Thanks.

    • ANSWER:
      I think you mean SIMPLE plan. A SEP is employer contributions only.

      Main difference between a 401k and a SIMPLE plan is the decreased reporting requirements AND the lower required contributions by the company. Typically it’s a good fit for a small company where the business owner is the sole family member working for the company. You’re right that the contributions are limited and that’s why I say that the owner is the only family member there…he/she could care less if you, or anyone else, can maximize your contribution.

      If you’re not currently maximizing your contributions then you shouldn’t care about the lowering of the limits. If you are…it’s huge takeaway.

      You don’t say what your employer contributions are right now but a simple requires either a 2% employer contribution or a 3% matching contribution. This is slightly lower than what is required for a safe harbor 401k. That’s why the reporting requirements are lower. And since this contribution is mandatoryI would say they are looking at eliminating the bonus….saying “oh we’ll pay it into the retirement plan instead of paying it to you so that you have more at retirement” when they already have to make the contribution to begin with seems a bit underhanded to me.

  8. QUESTION:
    Can I open a SEP or Solo 401k?
    I was a W2 employee but am now doing some work as a 1099 contractor for a few months. I am not incorporated or have a seperate TIN for my business or anything like that. I probably will get a W2 job again by the end of the year.

    What constitutes being “self employed”? Am I eligible to open a SEP or Solo 401k?

    • ANSWER:
      You can do either. You won’t need the TIN for the business as you’re just going to run everything through the schedule C. But you will need a TIN for the SEP or Solo 401k. Easy to do…you can even do it online. Go to www.irs.gov and do a search for SS-4.

      Now as to whether you should or not….If you don’t plan on putting in very much then the SEP is the way to go. You’re limited to 20% of your earnings using the SEP. plan set up is easy and cheap. You can do this yourself. If you want to exceed that amount then the solo401k is the way to go but to set up the plan set up would be more expensive and little more difficult. Can’t do it yourself. Only do this if going to be an ongoing business.

  9. QUESTION:
    Why would my employer pick a 401k over a SEP IRA?
    Is it true that with a SEP IRA my employer would have to give all employees the same percentage he gives himself?

    also…why would my employer agree to do the Safe Harbor matich? What’s in it for him?

    • ANSWER:
      Yes, that’s what a SEP is…he would have to provide most of his employers the same percentage in a contribution as he would receive. A SEP really makes little or no sense these days….Don’t fault your employer for taking advantage of better plans that are available to him.

      He does the safe harbor match rather than a straight 401k because he wants to avoid discrimination testing that would limit his contribution amount if the employees didn’t participate. By choosing to provide a matching contribution that is immediately 100% vested he gets to maximize his contribution even if you (the employees) don’t choose to participate. That wouldn’t be the case with a regular 401k. He basically knows he can put in k into his retirement plan on an annual basis and the cost to him is 4% of the employees wages. A small business owner may have 0k in wages. 4% of that is ,000. So, for putting in k to the employees (deductible by the way) he/she can put in 20k into her own account.

      As you can see, that’s a much better scenario for the employer than the SEP. If your employer went that way then he/she would have been limited to 4% contribution or k. Not smart…

      But, keep in mind that with a Safe Harbor plan you benefit too….you get a match and it’s immediately 100% vested AND you get that match even in your last year of employment. If you have a normal match and you quit December 15…you forfeit the match for that year. Safe Harbor plans…you get that match.

  10. QUESTION:
    Can my business have a SEP IRA when I still contribute to another company’s 401k?
    I recently started a side business and may actually double my income. I have currently been funding my 401k the max 20% but will only save about 00 a year. Can I start a SEP IRA for my business and invest the other 00 or is there a limit on my many plans I can take part in?

    • ANSWER:
      Yes, you can contribute to the employer sponsored 401(k) plan and have a seperate SEP IRA for the side business. The 401(k) is reported to the IRS on form W-2 as a 402(g) salary deferral from wages. Defined under code section 402(g)(1) Elective Deferrals and are are limited to ,500 for 2007.

      The SEP IRA is taken as a deduction from the side business. The IRS has a combined limit called 415 in which all plans may not exceed. The combined 415 limit for 2007 under code section is 415(c)(1)(A) is ,000. This limit is adjusted each year for cola.

      Please see IRS chart to link provided.

  11. QUESTION:
    I want to open a SEP IRA, rollover my 401k, and do stock trading…all with one company. Who’s the best?
    I use Fidelity for my 401K, Ameritrade for my stocks, Wells Fargo for my checking accounts, INGDirect for my savings account, Chase for my credit cards and HELOC, and WaMu for my mortgage. I’m looking to consolidate a bit, so I don’t have to deal with so many different log-ins and interfaces. I also need to open a SEP IRA before the tax deadline. If I want to at least consolidate my 401K, SEP IRA, and Stock Trading with one company, what company should I go with? Schwab? Ameritrade? Fidelity? WellsFargo? ETrade? A different company? My must-haves are:
    1. No/Low Fees
    2. Good Customer Service
    3. Intuitive Online Interface
    4. Fast and easy set up (e.g. account set up, rollover, initial deposit, etc.)

    Thanks for your help!!!

    • ANSWER:
      Vanguard will give you the lowest fees.

      Schwab will probably give you the best service.

  12. QUESTION:
    Can I fund a Roth 401k AND a SEP both this year?
    Can I fund both or only one? What is the max amount I can fund each? What is the cut off on total income after which you are not allowed to participate?

    • ANSWER:
      no…only 1. you can fund 20% of income into the SEP and up to 16.5k into the ROTH 401k – unless you’re the owner and wish to declare a profit sharing contribuiton in which case I believe the cap is 50k. The cutoff on income is only applicable for the SEP and profit sharing contributions. There is no income cap on personal contributions (aside from you can’t contribute more than 100% of your income). Income cap for sep and profit sharing is 5x’s contribuiton cap.

  13. QUESTION:
    Tax Question about SEP IRA and individual 401k?
    If im:
    44 years
    a self employed contractor
    contributed ,000 to my employer sponsored 401k
    During 2009, my schedule C income was 0,000

    What is the maximum amount that I can contribute to (1) a SEP IRA and (2) an individual 401(k)?

    okay, not gonna lie, this is a problem i need help with for class… any help appreciated! much thanks!

    • ANSWER:
      My uderstanding is that you can put up to 45% of your income as a contractor into an SEP and it is fully deductible

  14. QUESTION:
    SEP/401k options for a (unincorporated) 1099 contractor ?
    I am a 1099 contractor and interested in setting up a 401k/SEP account. From my research so far it seems like i can set up a SEP plan and contribute up to 25% of pretax income. I also looked into Solo 401k but it seems like it is only available to incorporated businesses? I would like to contribute more than 25% of my income but as a 1099 contractor do i have any other options?

    And also if i contribute 5k to Roth IRA in the same year, does that mean i can contribute 5k less to SEP or are they both independent of each other and it doesn’t matter either way?

    • ANSWER:
      You may have additional options with a Keogh plan if you cannot qualify for a 401k plan since you are not an incorporated business. Qualified plans are very complex vehicles, and it is best that you consult with an enrolled agent to determine the best plan for your situation. An enrolled agent is a CPA who takes additional training and has received additional certifications in tax law.

      You can, however contribute to both a SEP IRA and a Roth IRA without it affecting your contribution limits. You must be under the maximum income limit to qualify for a Roth IRA, which is 1,000 if you’re single or 9,000 if you’re married filing jointly. Over that amount, your contribution gets phased out.

      If you’re under 50 years old, you can contribute up to ,000 to a Roth IRA (,000 if you’re 50 or older) and contribute the maximum to a SEP-IRA. That is exactly what I do, and I’m also self-employed as a 1099 contractor.

  15. QUESTION:
    Should you consolidate IRAS, SEP, and 401k?
    My wife and I have 4 IRA’s, SEP, and currently 401k.
    All at different companies. Should I consolidate? Is there an advantage of not doing it?

    • ANSWER:
      There are advantages to holding them all in one account but without knowing what type of money is held in the IRA’s I can’t tell you to consolidate. Some people have non-deductible contributions in their IRA’s and thus it’s not eligible to roll into the 401k…nor would you want to taint any other money by rolling it into that IRA.

      Nor do you provide any detail about what the investment options in your 401k. Can you invest in a brokerage account or are you limited to mutual funds only?

      Lastly, some find it easier to use an account for a specific investment objective? i.e. the Merrill Lynch account is strictly a Bond and Cash Equivalent account while the Smith Barney is invested solely in international equities and the ScottTrade account is for US equities. Makes it easier to monitor this way and you can take advantage of the varying fee structures that the entities offer.

  16. QUESTION:
    How do brokers make their money on selling IRA’s, SEP’s, 401k’s?
    Do some charge more than others? I made less then 95,000 this year so i think i will open a Roth IRA because when i take it out it’ll be tax free correct? Which company has the best IRA?
    Do all brokers charge the same amout for setting up and servicing the retirement account? I actually decided to go with a SEP. What percentage is normal for a broker to charge me on a SEP? I plan to keep it for 30 years.

    • ANSWER:
      You are correct. A Roth IRA earns money tax free, which is a incredible bargain no matter how you look at it. The way brokers earn their money is on the brokerage commission buying and selling for your IRA account. They hope that once you open an account with them that in the future you will stay with them and as the account grows, it will generate more and more broker commissions. Best IRA? I do not know. You have so many choices that it is difficult to select. If you want to invest in stocks, choose an on line broker such as Scottrade, TD Ameritrade, E-Trade, or Fidelity. I think Scotrade is the least expensive of the ones mentioned. If you want to dump the money into mutual funds, not an unwise choice, Fidelity or T Rowe Price have some really good funds.

  17. QUESTION:
    Individual 401k – Solo 401k – SEP IRA?
    I’ve recently become self employed and have a 401k at my old job. I just started doing research on self employed retirement plans like the SEP IRA and individual 401k. I found some good information about them here http://www.individual401k.com

    From reading information about them the Individual 401k and SEP have the same limits ,000 but with the individual 401k you might be able to contribute more at “identical income levels”. Here is a quote from their website.

    “Compared to other retirement plans you may be able to make greater contributions at identical income levels, therefore maximizing retirement contributions and valuable tax deductions.”

    Has anyone else set one of these retirement plans up? Should I setup a SEP IRA instead of an Individual 401k? What are the main things I should be considering when I make my decision?

    Thank you for any information you can provide about the SEP IRA or Individual 401k to someone who is self employed.
    JT

    • ANSWER:
      JT this is probably what you need to help you. It explains the differences pretty clearly.

      http://www.taxalmanac.org/index.php/SEP_IRA_versus_Solo_401k_/_Individual_401k

      SEP IRA versus Solo 401k / Individual 401k

      Introduction:

      Are you still recommending a SEP IRA as a retirement plan to your self employed clients? I’m guilty of that too until I learned about how some of my clients could benefit from the Individual 401k (sometimes called a Solo 401k) as an alternative to a SEP IRA. A SEP IRA is a good choice for some self employed clients, but in other situations an Individual 401k provides a larger contribution / tax deduction versus a SEP IRA

      About the Topic:

      Individual 401k / Solo 401k plans are available to sole props, LLC and S and C corps. The advantage is in how the contributions are calculated. Also, a client that has an Individual 401k can have a loan, something they can not have in a SEP IRA. For example, I have had a client that left an employer and had a 401k, rolled over their 401k into an Individual 401k and then borrowed ,000 to finance the startup of his business. There are no income or credit qualifications of getting the loan and interest is paid back into their own 401k.

      Contributions SEP IRA versus Individual 401k / Solo 401k

      In the example below the client is age 55 will have 0,000 net income in 2006 as a sole prop.

      SEP IRA – max contribution would be ,587

      Individual 401k – max contribution would be ,000 + ,587 = ,587.

      Before I knew of the benefits of the Individual 401k I would have recommended a SEP IRA and would have left a ,000 tax deduction on the table.

      Not every client can make a contribution greater than the ,587 permitted in a SEP IRA in this example, but for those clients that can an Individual 401k is clearly more advantageous. Also, a very interesting point is the benefits can be doubled for a husband and wife both working for the business and each with 100k net income would be able to contribute a total of ,174 to an Individual 401k.

      Summary:

      An Individual 401k may provide your clients with a greater tax deduction and retirement contribution when compared to a SEP IRA. Also, an Individual 401k allows a loan that can provide a financial cushion or can help finance the startup of the business. I have had clients setup retirement account at this firm and have become knowledgeable about these retirement plans by reading the information on http://www.individual401k.com

  18. QUESTION:
    my house,401k,sep ira,truck,bank accounts are in my name only.if i die does my wife get all my stuff ?
    i was just wondering if in ny
    is it the law for her to get everything
    or should i do a will right a way

    • ANSWER:

  19. QUESTION:
    Where is the best place to get money to pay taxes we owe? Our ROTH’s? Wife’s SEP or 401k from my previous job

    • ANSWER:
      answerer 1 is partially correct, but not nearly as clear as it needs to be… so here goes. retirement accounts are never really the best place to access funds to pay a just debt… but sometimes people have no other source or place in which to get the money owed other than a retirement account. having explained that i will give you the facts for you to make an intelligent decision.
      unless you meet an irs approved exception (reason) for tapping a 401k or sep account you will ALWAYS incur a penalty on any early withdrawl made to those accounts if you are under age 59 1/2 (55 years old under certain circumstances) the penalty are not the same, the penalty for early withdrawl on a 401K WOULD BE TEN PERCENT(plus all early withdrawls are taxable events and will result in income tax being owed on the entire amount withdrawn prematurly) the penalty for early withdrawls from a SEP account is TWENTY PERCENT (all early withdrawls would be taxable events and would result in income tax being owed on the entire amount withdrawn prematurly)
      any and all roth ira CONTRIBUTIONS may be tapped at any time for any purpose whatsoever without incurring any penalty (or tax) whatsoever!! there is no five year waiting period as most people believe(five year rule applies to earnings and conversions only, but NEVER on your own contributions). while you may tap into your roth to pay your tax bill and there are no penalties applied by the irs, this would seem to be the asset to use to pay your tax bill, but anyone considering this route should do so only under the most dire circumstances and only with very serious consideration and UNDERSTANDING of the implication of using retirement funds versus any and all other means to pay the debt. (the irs offers payment plans and will work with almost all taxpayers to resolve a tax debt)

  20. QUESTION:
    sep IRA to 401K?
    i had a sep IRA at my previous job and my new job has a 401K plan. I would like to transfer the funds from my sep to my 401K. is that possible? if so, how exactly would i go about doing that? thanks

    • ANSWER:
      You probably can. Contact the benefits department of your new employer.

  21. QUESTION:
    If I work a full time job and invest in the company’s 401k plan and have my own business can I setup a SEP IRA
    also.

    • ANSWER:
      yes, your own business can set up a SEP. Keep in mind that you can only put in 20% of your taxable income so a 401k may serve you better for your own company’s plan…you can defer 100% up to 15,500 (combined with your other plan) AND get that 20%….

  22. QUESTION:
    Set up sep 401K w/ Fidelity advice….?
    …Have to cancel / income not qualified / Fidelity says not possible? How to cancel?
    wife and I only partners in LLC. Income only from capital gains. Just need to cancel sep401K opened six months ago with no earnings.

    • ANSWER:
      qualified. Q: HOW DO I GET MY MONEY IF I WANT TO CANCEL MY 401K? …. With a start-up fund, you’re not likely to see big gains or losses as far as dollars go, so keep an eye on the percentages. … Or what percent income tax will I have to pay on it

  23. QUESTION:
    A tax question about rolling over my 401K to SEP-IRA?
    Can I roll over my present 401K into my old SEP IRA?

    I have a 401K plan now with about ,000 in it.

    I need to roll it over into either my old SEP-IRA account or my non-deductible IRA.

    Can I roll my 401K into my SEP-IRA? I don’t really want to roll it over into my non-deductible IRA.

    I also don’t want to open a Roth-IRA as it’ll put me in a too high of a tax bracket.

    Thanks for any advice.

    • ANSWER:
      You will need to talk to a good financial adviser and tax accountant. I cannot find anything that specifically prohibits or allows you to roll over a 401k into a SEP-IRA. I am not sure how this would work for tax purposes as SEP-IRA contributions are generally taxed then deducted when you file your taxes. You can certainly Roll everything over into a traditional IRA or an individual 401k. But I would talk with a tax adviser to find out more about the specifics.

  24. QUESTION:
    Is it possible to have an IRA and a 401K (and even possibly a SEP?)?
    Granted, if it is possible I’m sure the answer would be do do both, but that being said is it legal to do so? I currently have a IRA and am looking to join a company which has a 401k program, if I do join the company can I continue making contributions to my IRA as well as the 401k?

    On a side point I currently have a small side business which potentially could add up to something worthwhile (not Bill Gates successfull or anything remotely close). If the side business takes off, can I put the proceeds into something similar for the self employed, even though it’s not my primary source of income? If not other thoughts would be welcome.

    Thanks in advance.

    • ANSWER:
      I sure hope so!

      I have a 401(k) with my current employer, an IRA with a former employer’s 401(k) funds in it, a SEP with my personal business, and a number of Roths…

      Check out “Retirement plans” at http://www.fool.com that should help clarify!

      Good luck…

  25. QUESTION:
    SEP IRA vs solo 401k?
    I am the only employee in a C Corp which I own 100%. When i get paid ,000 I send ,500 to a SEP IRA account at Vanguard. This ,500 seems to escape payroll taxes, i.e. social security and medicare. It just shows up as an expense on the4 P/L. How do contributions to a solo 401k work? Is it the same as a SEP IRA?

    • ANSWER:
      Better double check that info

  26. QUESTION:
    From an employer’s standpoint, what is the difference between offering a 401K and a SEP IRA?

    • ANSWER:
      1. Costs to set up.
      2. Ease of administration.
      3. Amount of employee’s contribution.
      4. Amount of the employer’s contribution.

  27. QUESTION:
    Can I convert a 401k into a sep IRA? If so, what are the disadvantages?

    • ANSWER:
      I’m no financial analyst. But the 401k being an employee plan, and the sep IRA being a self employed plan, I doubt you could roll it over. You could roll over your 401k to a traditional IRA if you leave your present employment. The advantage would be more options on where you wish to put your money, keeping the same tax benefits.

  28. QUESTION:
    SEP IRA vs. Individual 401K?
    My husband is self-employed. Currently he contributes to his SEP IRA but I read an article that said self-employed persons with no employees could contribute more to an Individual 401k. Our broker said, Ask the accountant and the accountant said Get the details from the broker. So, what’s the answer?

    • ANSWER:
      While both retirement accounts have a limit of ,000 per year, you may be able to contribute more to an Individual 401k, at the same income level. The reason: you can contribute up to 100% of the first ,500 of net self-employment income to the 401k, plus a profit sharing contribution of up to 20% for self-employed (SE) individuals.

      The SEP-IRA has a contribution limit of 20% of net self-employment (SE) income, after deducting 1/2 of your SE tax. So, if your husband has net income of 0,000, he could contribute ,587 to his SEP-IRA, and substantially more, near double that, to his 401k.

      The SEP, however, is easier to set up and administer. The 401k allows for loans from the plan (a disadvantage, in my opinion).

      Hope that helps.

      DISCLAIMER: While the information in this response was obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. The opinion voiced in this answer is for general information only and is not intended to provide specific advice or recommendations for any individual. Questioners are urged to consult with their professional advisers before making any decisions regarding their finances.

  29. QUESTION:
    what is overal maximum for 401k and sep?

    • ANSWER:
      401k employee deferrals maximum for 2009 = 16,500
      2009 total defined contribution limit = 49,000
      SEP contribution limit = 49,000.

      However, SEP contribution is a percentage of compensation limit and thus if you contribute 20% to yourself then you have to contribute 20% to all other eligible employees. 401k defined contribution limit is combination of employee contributed money and employer contributed monies and there are formulas that can allow as little as 5% employer contribution limits that allow the owner of a company to receive the full 49,000 contribution.

  30. QUESTION:
    Self Employed Individual Retirement Account: SEP IRA or Solo 401k?
    I have an S corporation established couple years ago, I am the president, vice president, treasurer, and janitor… I do engineering consulting, with no employees…i’m generating about 0k per year in income.. my overhead/expense are very very minimal, so i normally get hit with a big tax bill at the end of the year… So I am seeking an individual retirement account…and need your help/opinion…

    The options are SEP IRA or Solo 401k, i was researching and seems i can contribute about 40k or so into each… what are the advantages/disadvantages of each? how about admin fees? (i read for the first 3 years they give you a 0 tax break for admin fees).. besides that, I would like to save up about 20-25% of each income check into that retirement account…Any advise is greatly appreciated.. Thank you.
    No I do NOT pay myself W2, I just dig into the bank account (i am working on setting up a payroll for me), but at the end of the year, i file the 1120 i think tax form for the corporation, all revenue less deductions, issue a K1, and roll that into my personal…

    • ANSWER:
      Tax deductions are the same for both. SEP-IRA is less paperwork and tax reporting (hence the “S”, Simple). The tax credit is the same. I’ve had a SEP, and it was as easy as opening an IRA. We’ve opened solo 401ks, and there’s a lot more paperwork, and you have to file a report to the IRS every year. No annual report required with a SEP-IRA.

      http://www.dol.gov/ebsa/publications/SEPPlans.html

      http://www.smsmallbiz.com/benefits/The_Solo_401(k).html

      Schwab, Fidelity, Vanguard all sponsor both types. Call their Retirement Plan depts and ask them.

  31. QUESTION:
    Can I make a Traditional IRA and a SEP-IRA at the same time?
    I am currently self-employed. I have a Traditional IRA (a rollover from my former employer sponsored 401k) and a SEP-IRA. Can I contribute the maximum allowable to both by this April 15th?

    • ANSWER:
      No. You cannot make additional contributions to a Rollover IRA.

      Make all of your contributions to your SEP.

      Good luck, and happy filing!

  32. QUESTION:
    If I open a Solo 410K and a Roth 401K, are the contribution limits separate or combined?
    I am self-employed and have a SEP IRA. I am thinking of opening a Solo 401K and a Roth 401K. I want to convert the SEP into the Solo 401K. When I’m done I can reduce my taxable income with the Solo 401K and can have the Roth for tax free withdrawals at retirement. Are the contribution limits separate or combined for these 2 401K accounts?

    • ANSWER:
      All 401k contributions must be treated as one big contribution just as IRA accounts do. You can have many 401k accounts, but all your contributions must be added together.

      The maximum contribution to 401k is ,500.
      The maximum contribution to IRA is 00 (00 if you are 50 years old or older). The amount you can contribute to IRA could be reduced if you earn too much income. IRS publication 590 goes into full details on how much you can contribute into Traditional IRA or Roth IRA.

  33. QUESTION:
    How will the recession or dollar devaluation affect my 401K &Roth investments? Should I sell off, buy euros?
    Considering all I’m reading about this recession, I don’t want to lose gains or especially capital I’ve invested into SEP, IRA, and rollover 401K accounts. If the stock market crashes or if the dollar devalues , what will happen to those investments? Could I lose my capital ? Should I cash them now and put that money into a money market account? Or perhaps buy euros or yen?

    • ANSWER:
      You`re already on the low side of a bear market, unless, Heaven forbid, we end up in a full-scale depression. We are already in a recession, as reflected by the stock market and other financial gurus (Warren Buffet, for one). A lot of damage has already been done to your portfolio, and the dollar has already de-valued. How low it will go? You, I and everyone else would love to know. Yes, worse case scenario, you can always lose capital with ANY investment. I won`t tell you how to manage your finances, but I will tell you this….Don`t liquidate. You`re going to pay some stiff penalties and taxes right off the bat if you do, and that on top of your (already) losses. Don`t buy Euros, because the dollar is ALREADY de-valued and your buying power is LESS. My opinion, Your SEP, IRA, and 401K ?? Ride it out, and wait for the upturn.

  34. QUESTION:
    I am thinking of starting a business on the side. I already have a 401K can I also have a SEP IRA?

    • ANSWER:
      Yes. You might not get the full deduction

  35. QUESTION:
    Can I open a SEP IRA if my wife has a 401k at work?
    My wife makes over 5k per year and receives a w-2 from her employer. She contributes to a 401k through her employer. I am a self employed consultant, sole proprieter with NO employees and receive 1099′s from my clients. I earn about k/year. I know any standard IRA contribution by either of us is not tax deductible since she is in the 401k but if I open a SEP IRA are my contributions, tax deductible? Also, can I still open a SEP IRA before the filing deadline of April 15?

    • ANSWER:
      Yes, You can
      the max you could contribute to your SEP IRA is 49,000.00
      Your wife could max out her 401k at 16500.00

  36. QUESTION:
    can I contribute to my compaines 401K and a seperate retirement account from my own small business?
    I have a day job and a small business that I do at night and on the weekends. Can I set up a SEP for my own company if I contribute to the 401K my day job has for me?

    • ANSWER:
      Yes if you do not own the day job company. Keep in mind though that if you are not maximizing your day job 401k then you might be better served maximizing that contribution instead of a SEP as the SEP is limited to 25% of the income if it’s an C-Corp and 20% if it’s an S-Corp. And, depending on your income level, desire to fund into a ROTH, and corporate status of side job you may be better served if it were a solo-401(k)

  37. QUESTION:
    What is the best way to use my old 401K to fund my music career?
    I’m 30, I have an old 401K from my past job. Should I create an LLC for myself, transfer to a SEP or Simple IRA? What are the tax or penalties? Any new legislation for start-ups? Thanks!

    • ANSWER:
      you should be saving that money for retirement – withdrawing it now will cost you between 15-30% of it to taxes and penalty

      just do a direct rollover to a regular IRA and leave it there

  38. QUESTION:
    Can I rollover my SEP-IRA into one of my Traditional IRA?
    I have a SEP-IRA on Brokerage A and would like to know if I can rollover it to my IRA on Brokerage B. IRA on Brokerage B was a rollover of my 401K from a previous job.

    The reason for this is I am planning to consolidate all my before tax retirement contribution into single IRA account.

    • ANSWER:
      A SEP-IRA can be rolled over into a traditional IRA. You’ll have to ask the Brokerage B custodian if you can roll it into that account or if you need to keep it a separate rollover account.

  39. QUESTION:
    Can I deduct SEP IRA contributions if I’m married filing separately?
    I read that if one spouse (my husband) has access to an employer provided retirement plan AND the couple is married filing separately, there are extreme restrictions on the other spouse’s (my) eligibility to deduct Traditional IRA contributions. If I am self-employed, does this apply to my SEP IRA contributions? This is my only retirement plan; I do not have a separate Traditional IRA. My husband only has his work 401k. Thanks!

    • ANSWER:
      Yes! Filing status has no influence on the deductibility of a SEP-IRA contribution, which is an employer-sponsored retirement plan. Your maximum deductible contribution for 2010 is your (net self-employment income less 1/2 self-employment tax) x 20% or ,000, whichever is less.

      Hope that helps.

      PLEASE VOTE to avoid a TIE. On behalf of all of your responders, who take the time and effort to help questioners in this free Yahoo! community, THANK YOU in advance for taking the time to choose your “Best” Answer. We really appreciate it.

      DISCLAIMER: While the information in this response was obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. The opinion voiced in this answer is for general information only and it shall not be construed as tax, legal, or investment advice for any individual, nor shall it be considered a solicitation for business. Questioners are urged to consult with their professional advisers before making any decisions regarding their finances.

      Bradley Mann, CFP®, EA, BCE, CFS, AAMS
      Certified Financial Planner Practitioner
      Enrolled Agent | Admitted to Practice before the IRS
      Board Certified in Estate Planning

      “Providing sound retirement opportunities and tax-reduction strategies since 1985.”

  40. QUESTION:
    I have a SEP IRA, no longer current business retirement account, change to a traditional IRA?
    I have a SEP IRA from when my business was a proprietorship. In the past year, my business became an LLC and set up a solo 401k, so I am no longer funding the SEP IRA.

    Should I somehow recharacterize the SEP IRA in to a traditional IRA? Is this even possible?

    Thanks.

    • ANSWER:

  41. QUESTION:
    i did not contribute to company retirement plan or 401k. Can I contribute to IRA?
    I joined new employer in Sep,2005. I was eligible to join 401K from Nov2005. I did not contribute to 401k plan. Box 13 in my W2 (retirement plan) is checked.
    I am trying to claim my ,000 IRA contribution. Turbo tax is not giving full deduction of ,000. It is giving only 0 deduction from my Total Income. Why do not I get 00 IRA deduction.
    Thanks inadvance.
    Ram

    • ANSWER:
      Income limits apply when box 13 is checked.

  42. QUESTION:
    My Company does not offer a 401k. I’ve heard a lot about SEP. Can anyone open one up? Max Contribution?

    • ANSWER:
      SEPs are for people who are Self-Employed. You would not be eligible for one.

      You should be contributing to a Roth IRA. You put in after-tax dollars, but your earnings grow tax free forever.

  43. QUESTION:
    Can I open up a deductible or Roth IRA if I have 401k plan?
    I was wondering if I can open up a Roth IRA if I already have a 401K plan?

    I also have a “non-active” (that is I’m not contributing any more) SEP IRA and an active non-deductible IRA.

    • ANSWER:
      Yes you can. You can also have another Traditional IRA as well. You will have income limits and also come under a combined deposit limit. See your accountant or HR person for specific details.

      Simplified Employee Pension ( SEP) IRA’s are usually pre-tax as are traditional IRA’s and 401K’s

      A Roth is funded with AFTER tax dollars and the capital gains are not taxed.

      Were I you, I’d open the traditional IRA and roll your 401K into it ( if you are no longer employed by the company that had the 401K), but do NOT roll the 401K into the Roth, as you will pay taxes and penalties.

      With that said——- If you 401K is a “matching” one, IE… your employer kicks in some sort of match up to a certain limit, then I’d stand pat on the 401K and fund it to the maximum of the employer match. EXAMPLE—- Your employer matches 25% of your contributions up to 00. That is an IMMEDIATE 25% return on investment ( ROI) without having to do a darn thing except make a deposit….

  44. QUESTION:
    Change 401K to new broker?
    Is it possible to switch 401k/SEP management firms without some kind of penalty? Has anyone gone through this process? Is it more trouble than its worth?

    • ANSWER:
      No. Your employer decides which firm manages its 401(k) program.

      However, you can transfer the money to a rollover IRA at a firm of your choice.

      If you change jobs, sometimes the new company will allow you to transfer the money from your old employer’s 401(k) to your new 401(k).

      There are no penalties (except maybe early withdrawal penalties) for doing this. They may charge you a fee to send the money.

  45. QUESTION:
    Which IRA should I roll over my 401K?
    I’m changing jobs and I need to roll over my 401K plan.

    Currently I have a non-deductible IRA that I’m actively contributing and a SEP-IRA that I had when I used to be self employed. SEP-IRA is “inactive”, that is I can’t put any money into it as I’m not self employed.

    My question is, where do I roll over my IRA into?

    Can I open another IRA account, say a Roth IRA and roll it over there?

    Thanks for any advise. Preferably right ones!

    • ANSWER:
      A Roth is funded with dollars that you already paid income tax on, so you can’t put 401K dollars in it.

      Your previous employer will carry your 401K account until you make a decision, so there isn’t a rush to do anything immediately.

      Simply contact your stock broker (if you have one) or your banker and tell him you want to rollover 401K funds into an IRA account. They will send the necessary paperwork to the original 401K administrator and the funds will be rolled over into a new IRA Rollover account. It’s important that the transfer be made directly to the new account.

      However, if the plan is performing well with the old employer, you might want to leave it alone for the time being. I am not aware of any law or requirement that you move your account when you terminate your employment. If you have been receiving regular statements the plan administrator’s name should be on there someplace. Call them.

  46. QUESTION:
    Should I use my SEP IRA to pay off my debt?
    I have a Sep IRA from my old job that I do not and have never paid into that would cover my student loan and most of the rest of my debt. I’m in a debt management program, which gives me a decent interest rate on the debt I incurred when I was not able to work. But I am left with little/no disposable income & a stinky credit rating. I’m scheduled to be done in 4 more years, but I’d like to have some disposable income & be able to build a little emergency savings while fixing my credit ASAP in prep for buying our 1st home. Just waiting for hubby to finish his Master’s and secure a new job in the Fall.

    I have a 401k at my new job and I try to make a little money on the side, but don’t have a lot of time for that with a 3 month & 3 yr old. So, I’m working extra hard at the 9-5 to target a raise in the Spring. I just want some peace of mind, to be able to afford a haircut once a quarter and to see the possibility of home-ownership sometime…

    Can anyone suggest a good plan?

    • ANSWER:
      The tax consequences of early withdrawal before age 59 1/2 from any retirement account will be 10%. If you are willing to accept this fact, then by all means, use your IRA funds to pay off the debt. I wouldn’t suggest you do that because you will lose the earning power if you withdraw money from the IRA. Your SEP IRA may or may not be growing at all since you don’t work there anymore. So it may be wise to roll it over into a Traditional IRA. Then 12 months after that, roll it over again into a Roth IRA.

      Here is what I would do if I were in your situation:
      1) Create a budget worksheet. That way you can analyze your monthly spending and where you can save money on. The budget worksheet should list everything you spend on, from food, gas, car, insurance, maintenance, entertainment, utility, personal maintenance (ie haircut), clothing, child support, etc.
      2) Stop contributing to your 401k
      3) If you have any insurance (car, life, etc), shop around for a lower premium.
      4) Whatever money you save, use it to pay off the principal balance (if there’s no early payment penalty on the loan)

  47. QUESTION:
    401k rollover questions?
    I have the following retirement accounts; Traditional, Roth, SEP IRA, as well as 401k account from my previous employer. My question is;
    1. If I rollover my 401K to SEP-IRA, can I still contribute 20% of my self-employment income to SEP-IRA? (Does my rollover counts towards this limit?) Also, if I do the roll-over, can I deduct the roll-over amount when I file my taxes next year?
    2. What if I roll-over my traditional IRA to SEP-IRA?

    Please let me know. Thanks!

    • ANSWER:
      rollovers do not count as contributions. they are transfers. You can’t deduct them no matter what you do. Only thing that happens is that you declare them on your 1040 (line 16a) and then declare them to be non-taxable on 1040 (line 16b). At that point the govt computers scan the databasefor rollover institutions (receiving institutions notify IRS of amount and SSN) and the IRS will note any differences and flag for possible audit if they don’t match.

      Answer is same for #1 and #2

  48. QUESTION:
    I about to close on fha loan and i borrowed form my 401k?
    i took a loan form my 401k to cover the down payment I was wondering would this be a problem with the lender since they just asked to see my bank statements for the last month to see if i had any large deposits. are they trying to back out of the loan since we close on sep 11 2007 . i was worried because they might say that i can’t afford this house because i borrowed that money and will be paying it back ( to myself i might add interest and all)

    • ANSWER:
      as long as you can source where the money came from you WILL NOT have a problem……..the problem with large deposits comes in where people can not explain where the money came from…..if the money had been sitting in your 401K for more than 60 days it is already “seasoned” so you will not have a problem…..congrats on your new home

  49. QUESTION:
    I am covered by a corporate pension plan and I own my own business, Can I set up a SEP IRA and lower my taxes?
    I am already covered by a 401K plan, as a business owner can I set up a Self Employed Pension plan and contribute more money towards retirement

    • ANSWER:
      You can contribute to both a 401k and a SEP IRA.
      However, the two are related in that if you are an active participant in a qualified plan (say, for example, your 401k plan) limits are placed on the amount of a contribution to a traditional IRA that is deductible.

      You can also have a work place 401k and a solo 401k.
      The contributions to your Solo 401k will be based on your self-employment income and not on income earned as an employee of another company. However, the two plans are treated as one for purposes of determining your maximum contribution limits. You may not defer more than ,000 into both plans combined.

      For example, you may not defer the maximum as an employee at work (,000 in 2006) and then another ,000 into your Solo 401k as an employee of your own company. If you defer (contribute) say ,000 as an employee at work, you can defer (contribute) up to ,000 as an employee into your Solo 401k (as long as you have earned income from self-employment of at least that amount).

      The real advantage comes in on the profit sharing side, where if your employer does not contribute the maximum remaining on your behalf as an employer contribution (over and above the amounts you have deferred as an employee into the plan) you may contribute the maximum remaining (not to exceed ,000 combined employee and employer contributions if under age 50, ,000 if 50 or over (2006)) into your Solo 401k plan (if your compensation from self-employment warrants it-roughly 20% of net earned income for Solo Proprietors and 25% of W-2 wages for corporations).

  50. QUESTION:
    Can I deduct my traditional IRA if I have a 401K?
    Just wondering. I also have an old SEP IRA which I’m no longer contributing into.

    • ANSWER:
      Take this question with you when you get your taxes done and ask your preparer to run some figures for you on this so you can compare different amounts of contributions.

      I don’t know if H & R Block and the like would do this type of thing for you but I have done it for my clients a lot. In my area H & R Block hires new people every year so they have little or no experience in actually working for the tax payer. They are merely pencil pushers and that’s about it.