Under a SEP plan the employer produces an IRA account for each eligible staff member, thus the name SEP-IRA. Any money that goes into a SEP automatically belongs to the employee. Hence, the employee has the right to take his SEP IRA account cash with him whenever he stops working for the business.
Any size business can establish a SEP, however the SEP retirement strategy is made use of mainly by the self-employed and the small business with few staff members. The SEP IRA guidelines dictate that if the business contributes for one staff member, (i.e., the owner), then business needs to contribute proportionately for all of the staff members. With couple of exceptions, anybody who works for the business needs to be included in the SEP. You can omit from getting involved in the SEP strategy anyone who:
1. Has not worked for the business throughout 3 out of the last 5 years.
2. Has not reached age 21 throughout the year for which contributions are made.
3. Received less than $450 in settlement (subject to cost-of-living modifications) throughout the year.
SEP IRA contributions to each worker for 2004 can not exceed the lower of $41,000 or 25% of spend for W2 receivers (20% of income for sole owners). The SEP IRA contribution limitation increases to $42,000 for 2005, and goes through cost-of-living adjustments for later years. SEP-IRA guidelines do not provide for extra catch-up contributions for those 50 years old or over.
A growing number of self-employed people without any staff members are abandoning the SEP-IRA for a more recent kind of retirement plan called the Solo 401(k) or Self-Employed 401(k). The two main reasons for the switch are 1) they can usually contribute a lot more to a Solo 401(k) than they can under a SEP IRA, and 2) Loans are enabled under a Solo 401(k), whereas loans are forbidden under a SEP-IRA.
Example: Henry, age 52, a realtor received $60,000 in payment from self-employment earnings in 2004. For 2004, he might contribute an optimum of $27,152 in a Solo 401(k) versus an optimum of $11,152 under a SEP IRA.
The Solo 401(k) does not work for companies with workers. Therefore, if your business prepares to employ workers or has a handful of employees, the SEP IRA might be your finest option as a retirement strategy that is economical and simple to operate.

Under a SEP strategy the employer creates an IRA account for each eligible staff member, hence the name SEP-IRA. Any size company can establish a SEP, however the SEP retirement plan is made use of mostly by the self-employed and the little service with couple of employees. The SEP IRA guidelines dictate that if the company contributes for one staff member, (i.e., the owner), then the organization needs to contribute proportionately for all of the staff members. SEP IRA contributions to each employee for 2004 can not exceed the lesser of $41,000 or 25% of pay for W2 recipients (20% of earnings for sole owners).