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Thank you TMFPixy for answering my questions about SEP's and SIMPLE IRA's. I am beginning to understand how they work, but still have a few questions. Is there a longevity requirement that must be met before one is eligible to open a SIMPLE acct? Since I have just begun my contracting job, I only expect to make about $3500 this year. It seems like from reading about this type of account that I need to have one or two years work history and I need to make at least $5000 to be eligible. Also, am I correct in assuming that since I'm not making a lot of money, that I would be able to invest more in a SIMPLE than I could in a SEP? Last question: am reading info from TIAA-CREF and I am not sure which fund is comparable to the Vanguard S&P 500 Index fund. They refer to these funds as "a variable annuity account..." and that has me a little worried. Are these mutual funds or are they annuities? Thanks for giving advice to a rookie investor. All help is appreciated.
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Harprulz asks:

Is there a longevity requirement that must be met before one is eligible to open a SIMPLE acct? Since I have just begun my contracting job, I only expect to make about $3500 this year. It seems like from reading about this type of account that I need to have one or two years work history and I need to make at least $5000 to be eligible.

You are correct that you must have earned at least $5,000 through self-employment in the preceding calendar year to open a SIMPLE. In that sense, then, there is a work history requirement for the SIMPLE.

Also, am I correct in assuming that since I'm not making a lot of money, that I would be able to invest more in a SIMPLE than I could in a SEP?

Yes, you are correct. With a SIMPLE, you may contribute up to 3% of pay as the employER and up to 100% of your net compensation not to exceed $6,500 this year. With a SEP, you are limited to 15% of net compensation, which is about 13.04% of gross compensation. For lower self-employed incomes, that means the SIMPLE allows a greater contribution.

Last question: am reading info from TIAA-CREF and I am not sure which fund is comparable to the Vanguard S&P 500 Index fund. They refer to these funds as "a variable annuity account..." and that has me a little worried. Are these mutual funds or are they annuities?

Yes, that's what you're looking at. However, IMHO TIAA-CREF offers some of the best annuities in the nation.

Regards..Pixy

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I've been doing a fair amount of reading on both SIMPLE and SEP IRAs of late and was under the impression that the $5000 was not a firm requirement.

According the Pub 560:
"You can use less restrictive eligibility requirements (but not more restrictive ones) by eliminating or reducing the prior year compensation requirements, the current year compensation requirements, or both. For example, you can allow participation for employees who received at least $3,000 in compensation during any preceding calendar year. However, you cannot impose any other conditions on participating in a SIMPLE IRA plan."

To my reading, the phrase "by eliminating" seems to suggest that you can just go for it this year.

Just a thought...
BB
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