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Author: csufstudent One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75376  
Subject: Is one REQUIRED to contribute to a Sep? Date: 2/24/2001 3:18 PM
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After having established a Roth IRA for both of my parents, I have now realized that they are also eligible for a SEP IRA (both of them are self-employed). I have been trying to find out if there is any sort of minimum required contribution to maintain the SEP. They are not sure how much in addition to the ROTH they will have to contribute.

They will be doing ALL index funds. VFINX is their core 50% and they will be adding Small & Mid cap as well as total international funds.

Do you gus have any recommendations on which accounts they should keep these particular funds in?(because the VFINX is more tax friendly than the others).

They will only be eligible to each put roughly 5,000 in the SEP (each of them) per year.

THANKS!
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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28097 of 75376
Subject: Re: Is one REQUIRED to contribute to a Sep? Date: 2/24/2001 5:27 PM
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Greetings, Csufstudent, and welcome. You asked:

After having established a Roth IRA for both of my parents, I have now realized that they are also eligible for a SEP IRA (both of them are self-employed). I have been trying to find out if there is any sort of minimum required contribution to maintain the SEP. They are not sure how much in addition to the ROTH they will have to contribute.

An employer is NOT required to make a SEP contribution, but when it's made the same percentage of compensation must be made to all eligible employees. If your folks don't wish to make a contribution to the SEP this year, they don't have to do so.

Regards..Pixy


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Author: csufstudent One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28099 of 75376
Subject: Re: Is one REQUIRED to contribute to a Sep? Date: 2/24/2001 6:57 PM
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Thanks Pixy!

Correct me if I am wrong, but they can contribute the lesser of 30,000 OR 15% of self-earned income. ??
In that case, they would not know the eligible amount until the end of the year. Is this a correct assumption?

Thanks.





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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28105 of 75376
Subject: Re: Is one REQUIRED to contribute to a Sep? Date: 2/25/2001 8:25 AM
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Cfustudent asks:

Correct me if I am wrong, but they can contribute the lesser of 30,000 OR 15% of self-earned income. ??
In that case, they would not know the eligible amount until the end of the year. Is this a correct assumption?


Actually, it works out to about 13.04% of gross self-employed income. The 15% of pay is based on NET self-employed income before consideration of the business deduction for the self-employed FICA tax. And in essence, until the business year is over it's true they won't know the final amount they may contribute after all income and business expenses have been considered.

Regards..Pixy

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Author: skitime One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28109 of 75376
Subject: Re: Is one REQUIRED to contribute to a Sep? Date: 2/25/2001 11:32 AM
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I truely love the Roth IRA, but If an individual is self-employed and has no employees then my opinion is to invest up to the max in the SEP IRA (upto 28% tax bracket higher brakets need to run more calculations). My reasoning being that a Roth contribution is made on earned income, therefore FICA and FUTA have been paid. Employer contribution to a SEP IRA are pension expenses and they do not pay FICA & FUTA on the money contributed (saving them about 13.48%)

I hope I stated this clearly.

Michael

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Author: csufstudent One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28117 of 75376
Subject: Re: Is one REQUIRED to contribute to a Sep? Date: 2/25/2001 1:40 PM
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Thank you for clarifying the SEP issue for me. I have since consulted the IRS Publication on retirement plans. It is pretty thorough.

Thanks Again PIXY!



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