SEP IRA is a Simplified Employee Pension Individual Retirement Account, and derived its name based on the fact that it is simple. The purpose of the SEP IRA is to provide an IRA that functions in a similar manner to a pension for use by small business employers and self-employed workers. It’s flexible enough that it can be rolled over into a different form of IRA if employment changes or the owner becomes eligible for a different plan. Because it is designed primarily for the small business, the administrative costs of the SEP IRA are low, and for the self-employed there are normally no costs at all for administration of the account.
Major requirement of the SEP IRA regarding the benefits:
A business with employees must provide the same benefits to all employees. To qualify for the SEP IRA under employee participation, that employee must be over 21 years old and been employed for three of the last five years, earning at least $450 of wages in the previous year. In a SEP IRA, the employer makes contributions to the plan from the employee’s earnings, up to 25% of the employee’s total income. This portion of the employee’s earnings deposited into the SEP IRA can save on taxes and is deductible.
For the self-employed individual, the contribution limit is 20% of earnings and the maximum annual limit is approximately 18.6% of the net profit as calculated on his self-employed worker tax form. Distributions from a SEP IRA mirror those from a Traditional IRA. Disbursements are taxed at the prevailing tax rate at the time of withdrawal and subject to penalty if withdrawals are taken before age 59 ½. Distributions from the account must begin by age 70 ½. For the small business that wants to provide a retirement plan for employees but does not have the resources to fund a conventional plan, the SEP IRA provides a retirement safety net for the business and its workers.
Flexibility of the SEP IRA:
The SEP IRA appeals to many business owners because, unlike other types of IRA accounts, there is no set obligation for contributions. The employer is allowed to alter the amount and frequency of plan contributions based on profitability of the business, and can make these changes annually. If the company is a start-up with smaller profits, the employer simply sets up the SEP IRA with a modest employer match. As the business grows and profits become larger, the plan can be changed to larger contributions. If the business has a few years of struggle, contributions can be reduced until things pick up again. A business will appreciate the ease of setting up the SEP IRA, done easily with a two page form. Each employee completes an investment application that is provided by the company that holds the investment funds. There is no required reporting to the IRS on annual returns, so the small business can easily manage the entire process.
Most small businesses choose to have their plan held by larger mutual fund companies, allowing their employees to select how they want to invest their money and eliminating the choice of investments from the employer’s responsibilities. The individual employees decide for themselves. Owners of small businesses appreciate the fact that with a SEP IRA plan, they can offer their employees a retirement plan as part of the benefit package, and perhaps attract a higher caliber worker to a smaller company. Employees benefit as well, aided by their SEP IRA contributions building retirement security for them. The SEP IRA is simple to understand, easy to administer, and an excellent resource for small businesses and the people those businesses employ.
For more information, see SEP IRA Account and SEP IRA Limits
Also see: SEP IRA on Wikipedia
Photo courtesy of Salvatore Vuono
Roth IRA Contribution Limits 2011
The Roth IRA contribution limits 2011 establish the maximum amount you can invest for retirement via an IRA. The regular IRA and Roth IRA Contribution Limits 2011, plus the 2011 standard IRA deductibility restrictions and the 2011 Roth IRA income limits, are all critical considerations.
( Notice : If you are looking for the IRA limits for 2010 related to the April 15, 2011 tax filing deadline, review IRA contribution limits 2010. If you are looking for Roth IRA Contribution Limits 2011, keep reading.)
Roth IRA Contribution Limits 2011
The Roth IRA Contribution Limits 2011 were unchanged from 2010. Since 2008, the maximum you may contribute to a traditional IRA each year is $5,000. However, if you will be fifty or older by the end of the year, you may contribute an extra $1,000, for a $6,000 total IRA contribution limit. Remember that you and/or your spouse are required to have earned income at least as much as the amount you contribute.
These limits apply to both traditional and Roth IRAs. Even though you may be eligible to contribute to both plans, your combined contribution to both accounts may not be greater than your above limit ($5,000 or $6,000).
Deductible Roth IRA Contribution Limits 2011
Although there is no maximum income restriction for contributing to a regular IRA, there are income caps to deducting standard IRA contributions, which will vary based on marital status, income, and workplace retirement (for example, 401(k), 403(b) plan eligibility).
Roth IRA Contribution Limits 2011: Income Limits
Unlike standard IRA contributions, not every worker can contribute to a Roth IRA. Based on one’s marital status and income, some high-income earners are not eligible to contribute to Roth IRAs. But, since these plans are so advantageous to your preparations for retirement, be sure to understand the restrictions every year before deciding that you don’t qualify.
Roth Conversion Contribution Limits 2011: Income Limitations
Even if you earn too much income for a direct Roth IRA contribution, you might be able to use a Roth IRA by way of the backdoor. Roth IRA Contribution Limits 2011 allow the ability to convert a standard IRA to a Roth IRA became available to all taxpayers regardless of income on the 1st of January, 2010. Previously, a conversion was only accessible to people who had a modified adjusted gross income of $100,000 or less.
Per the IRS:
Roth IRA Contribution Limits 2011
|
|
| Roth IRA Contribution Limits 2011 Combined with Traditional IRA Limits
If you are under 50 years of age at the end of 2011: The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2011. This limit can be split between a traditional IRA and a Roth IRA but the combined limit is $5,000.The maximum deductible contribution to a traditional IRA and the maximum contribution to a Roth IRA may be reduced depending on your modified adjusted gross income.
If you are 50 years of age or older before the end of 2011: The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $6,000 or the amount of your taxable compensation for 2011. This limit can be split between a traditional IRA and a Roth IRA but the combined limit is $6,000. The maximum deductible contribution to a traditional IRA and the maximum contribution to a Roth IRA may be reduced depending on your modified adjusted gross income.
See Publication 590, Individual Retirement Arrangements (IRAs) for additional information. |
|
For more information, please visit the Roth IRA Contribution Limits 2011 info page and compare IRA Contribution Limits 2010 and 2011.
Roth IRA Contribution Limits 2011 are changing slightly for 2012. Stay tuned for the update…
IRA Contribution Limits
For several years, the contribution limit for an IRA stayed at $2,000, but policymakers realized that inflation made this limit inadequate for meeting the retirement planning needs of individuals. If you are using IRAs to fund your retirement, there is some good news about the 2010 and 2011 limits.
IRA Contribution Limits 2010
In 2010, the contribution limits on traditional IRAs and Roth IRA was $5,000. If you reach the age of 50 before the end of the calendar year, then you’re entitled to an additional catch-up contribution of $1,000. That brings your total to $6,000 if your age 50 or older by the end of 2010.
Traditional IRA Income Limits 2010
In 2010, the modified adjusted gross income or AGI contribution limits for traditional IRAs were raised. If you are covered by a retirement plan at work, then your tax-deductible contribution to a traditional IRA is phased-out if:
• Your filing status is married filing jointly, and your AGI is more than $89,000 but less than $109,000.
• Your filing status is single or head of household, and your AGI is more than $56,000 but less than $66,000.
If your tax filing status is married filing separate returns, then your deductible phase out starts at under $10,000.
Traditional IRA Income Limits 2011
In 2011, the modified adjusted gross income or AGI contribution limits for traditional IRAs were raised. If you are covered by a retirement plan at work, then your tax-deductible contribution to a traditional IRA is phased-out if:
• Your filing status is married filing jointly, and your AGI is more than $90,000 but less than $110,000.
• Your filing status is single or head of household, and your AGI is more than $56,000 but less than $66,000.
If your tax filing status is married filing separate returns, then your deductible phase out starts at under $10,000.
SIMPLE IRA Contribution Limits in 2010 and 2011
In 2010, the employer salary-reduction contribution that applies to SIMPLE IRAs remained at $11,500. For workers that are age 50 and older, your employer can make additional “catch up” contributions of $2,500, bringing the total contribution limit in 2010 for SIMPLE IRAs to $14,000. In 2011, the employer salary-reduction contribution remains at $11,500, keeping the total contribution limit at $14,000.
Roth IRA Income Limits 2010
In 2010, the following income limit rules apply to Roth IRAs:
• Single filers with modified adjusted gross income up to $105,000 can make a full contribution. If your adjusted gross income is in excess of $120,000, then you cannot make a contribution to a Roth IRA.
• Joint filers with modified adjusted gross income up to $167,000 can make a full contribution. If your adjusted gross income is in excess of $177,000, then you cannot make a contribution to a Roth IRA in 2010.
Roth IRA Income Limits 2011
In 2011, the following income limit rules apply to Roth IRAs:
• Single filers with modified adjusted gross income up to $107,000 can make a full contribution. If your adjusted gross income is in excess of $122,000, then you cannot make a contribution to a Roth IRA.
• Joint filers with modified adjusted gross income up to $169,000 can make a full contribution. If your adjusted gross income is in excess of $179,000, then you cannot make a contribution to a Roth IRA in 2011.
Contribution Limits in 2010 and 2011
The contribution limits for traditional and Roth IRAs remains at $5,000 in 2010 and 2011. The catch up contribution for those ages 50 and older by the end of 2010 or 2011 will remain at $1,000. Therefore, you can contribute up to $6,000 to a Roth or traditional IRA if you’re age 50 and older.
See Publication 590, Individual Retirement Arrangements (IRAs), for additional information.
IRA Contribution Limits 2010
If you are below 50 years old at the end of 2010: The maximum contribution that you can make to a traditional or Roth IRA is $5,000 or the amount of your taxable wages for 2010, whichever is smaller. This limit can be split between a traditional and a Roth IRA, but the total (combined) limit is $5,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be decreased depending upon your modified adjusted gross income (modified AGI).
If you are more than 50 years old before the end of 2010: The maximum contribution that can be made to a traditional or Roth IRA is $6,000 or the amount of your taxable wages for 2010, whichever is smaller. This limit can be split between a traditional and a Roth IRA, but the combined limit is $6,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be decreased depending upon your modified AGI.
See Publication 590, Individual Retirement Arrangements (IRAs), for additional information.
A Simplified Employee Pension plan, referred to as a SEP, is essentially a grouping of traditional IRAs managed for employees. The SEP traditional IRA was developed to benefit small businesses and self-employed people, and is frequently the plan of choice for sole proprietorships, LLCs, S and C corporations, and partnerships. In the small business model , an employee, including the business owner who is also eligible to participate in the plan , must establish a traditional IRA into which the employer will fund the SEP contributions. The SEP traditional IRA has more generous contribution restrictions than other types of individual retirement accounts. An eligible employee can contribute as much as 25% of annual compensation to their account. To be qualified for participation the employee must be at least 21 years old , have worked for the company three of the last five years, and been compensated for that work with at least $550. Contributions must be consistent , so a 20% contribution to the SEP traditional IRA on behalf of one employee calls for a 20% contribution to the SEPs of all eligible employees. The employer has the option of reviewing and adjusting the contribution amount, or even suspending the contributions. Sometimes this is a choice reached based on the company’s annual profit outlook orlatest economic circumstances. Once contributed, the money is totally vested and can be transferred to a new employer’s sponsored retirement plan in the case of a career change, or rolled into another IRA. Because the SEP traditional IRA is still basically a traditional type of retirement account, the assets are subject to a lot of of the traditional IRA rules as pertains to distribution and investment selections. The huge difference and great benefit is the significantly increased contribution limit for the SEP traditional IRA that makes it possible for account owners to defer more toward their retirement savings at a faster pace.
The SEP traditional IRA hasa lot of of the qualities of a traditional IRA and is subject to theidentical rules on investment choices and distributions. The distinction for the SEP traditional IRA is most evident in the significantly larger contribution limit it allows . This plan was developed to benefit the self-employed person and small companies who might not have the resources to provide their employees with a more conventional retirementplan. In the small business plan, eachperson has a traditional IRA and the plans are grouped together as aSEP traditional IRA account into which the employer funds the contributions. Usually the employer will open the plans for all eligible employees. The employer funds the SEP accounts through a pre-tax salary reduction, and contribution percentage is consistent for all eligible employees. The greater allowed contribution limit, up to 25% of yearly compensation, allows the employees to accumulatemore savings for retirement at a quicker pace. This is particularly advantageous forindividuals who may have gotten a late start saving andgetting ready for their retirement years. The retirement benefits in the SEP are fully vested as soon as they are contributed, making the account portable. Employees who change employers can roll their SEP funds intoa different IRA or transfer them to a retirement plan sponsored by the new employer. Typically small businesses select a mutual funds company to manage the SEP account, allowing each employee to make their own investment choices based on theirobjectives and risk-tolerance. There is alower set-up cost for the employer with a SEP, and the reporting and record-keeping demands are simplified . Like a traditional IRA, distributions from the SEP traditional IRA canbegin as early as age 59 ½, although there is a 10% penalty for earlier withdrawals in addition to standard tax obligation. Distributions must commence no later than age 70 ½ years old. The SEP traditional IRA offers a stable savings opportunity.
