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It's Not Too Late to Start a 2011 SEP for Some Self-Employed Businesses

Tuesday, June 26, 2012  No comments

A Simplified Employee Pension (SEP) is a plan that allows businesses to make retirement contributions for its employees and owners without getting involved in more complicated qualified plans.

Under a SEP, the contributions are deposited to a traditional IRA, sometimes called a SEP-IRA, set up by each eligible employee. Once in the IRA, these funds are like other Traditional IRA funds, and the IRA is owned and controlled by the employee. The employer does not manage the money after it’s deposited in employees' IRAs.

A self-employed business owner is the owner of a business that is not incorporated, such as a sole proprietor or partner. A self-employed person's compensation is generally the profit from the business with some adjustments. These adjustments can be found in IRS Publication 560, Retirement Plans for Small Business. 

The maximum SEP contribution for 2011 is the smaller of 25% of the individual's compensation or $49,000.

Even though SEP contributions are made into traditional IRAs, the SEP contribution deadline is different than the deadline for making traditional IRA contributions. The deadline for making an IRA contribution for 2011 was April 17, 2012. If the individual had an extension to file their taxes for the year, that did not extend the IRA contribution deadline.

The deadline for contributing to a SEP for 2011 can be later than April 17, 2012. The deadline for contributing to a SEP is your business’ tax filing deadline, including any extensions you have. So if, the business has an extension to file their 2011 taxes, they can set up and make SEP contributions for 2011 up until October 15, 2012.

-By Joe Cicchinelli and Jared Trexler

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Consumers: Send in Your Questions to [email protected]

Q:
I transferred a stock from my IRA to my regular (non IRA account) and then transferred the exact same number of shares of the same stock back into my IRA within 60 days. However, the value of those shares was $10,000 higher.

Do I have a problem because I put more money into the IRA even though I transferred the same number of shares?

Thanks
Mark

A:
There is no problem. Your distribution of property (shares of stock) from your IRA qualifies to be rolled over tax-free within 60 days only if the identical stock is rolled over to a receiving IRA. It is common for the value of stock to change during the 60-day window. That’s OK and still qualifies as a tax-free rollover. When your tax return is filed for the year, your tax preparer may want to attach a note to explain the different values.

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