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Author: KCofMaine One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Start a SEP again? Date: 9/26/1998 9:03 PM
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A few years ago, as a self employed person, I had a SEP (Simplified Employee Pension plan). No employees except myself.

I decided I wasn't putting enough in to fool with a SEP, so I converted it to an IRA, and took out an IRA for my wife too.

Along came the Roth IRA. I converted my wife's IRA to a Roth IRA. I left my traditional IRA alone and stopped making contributions to is. I also began a Roth IRA for myself.

Economics are better for me now and I can put more into a SEP now, considerably more than I can my Roth IRA.

QUESTION: May I start another SEP?? If "yes," then...

1. Can I do both a Roth IRA for me and a SEP?

2. Must I stop the Roth IRA before beginning a SEP?

3. If I stopped contributing to the Roth IRA, and started up a new SEP, could I invest the maximum allowable SEP contribution based on this year's income figures...even though I have contributed 3/4ths of my allowable Roth IRA contribution for the year?? OR, must my SEP contribution be the difference between what I could have given into a SEP and what I have already given into my Roth IRA?

Thanks, in advance, for any help.

KCofMaine
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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: 5677 of 76418
Subject: Re: Start a SEP again? Date: 9/27/1998 10:19 AM
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KcofMaine wrote:

A few years ago, as a self employed person, I had a SEP (Simplified Employee Pension plan). No employees except myself.

I decided I wasn't putting enough in to fool with a SEP, so I converted it to an IRA, and took out an IRA for my wife too.

Along came the Roth IRA. I converted my wife's IRA to a Roth IRA. I left my traditional IRA alone and stopped making contributions to is. I also began a Roth IRA for myself.

Economics are better for me now and I can put more into a SEP now, considerably more than I can my Roth IRA.

QUESTION: May I start another SEP?? If "yes," then...


Yes.

1. Can I do both a Roth IRA for me and a SEP?

Yes.

2. Must I stop the Roth IRA before beginning a SEP?

No.

3. If I stopped contributing to the Roth IRA, and started up a new SEP, could I invest the maximum allowable SEP contribution based on this year's income figures...even though I have contributed 3/4ths of my allowable Roth IRA contribution for the year??

Yes.

OR, must my SEP contribution be the difference between what I could have given into a SEP and what I have already given into my Roth IRA?

No. Neither contribution has any bearing or impact on the other.

There, wasn't that easy?

Regards…..Pixy




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Author: shess Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5699 of 76418
Subject: Re: Start a SEP again? Date: 9/28/1998 2:31 PM
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KCofMaine wrote:
<<QUESTION: May I start another SEP??>>

You never stopped having a SEP IRA! You just stopped making SEP contributions...

<<If "yes," then...
1. Can I do both a Roth IRA for me and a SEP?>>

SEP IRA contributions are effectively employer contributions into an employee IRA. Roth IRA's are personal-only. Even though in your case employer and employee are one in the same entity, for tax purposes there is a logical seperation.

<<2. Must I stop the Roth IRA before beginning a SEP?>>

By the answer to #1 - no need!

<<3. If I stopped contributing to the Roth IRA, and started up a new SEP, could I invest the maximum allowable SEP contribution based on this year's income figures...even though I have contributed 3/4ths of my allowable Roth IRA contribution for the year??>>

You can make a SEP contribution of 13.5% of your gross earnings, up to some limit ($24k or somesuch). That's on the business side of things! You can make a Roth-IRA contribution of up to $2k of earned income on the personal side, up to certain income limits. These are seperate items for tax purposes.

Note that if you have a qualified employer-supplied pension plan (including a SEP-IRA plan), this can limit your deductable contributions to your personal IRA. But the fact that it's a _SEP_ plan and you're the employer and the employed has no bearing on this. SEP's are just like 401(k)'s and other plans in this respect.

Also, you might want to look at the SIMPLE IRA plan. This is a recently (97, I think) created alternative to SEP-IRA's. You can contribute up to $6k of earnings, which is better than a SEP for those with lower earnings. SEP becomes a better deal at around $45k ($6000/.135==$44444.44).

Later,
scott


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Author: dswartz Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5700 of 76418
Subject: Re: Start a SEP again? Date: 9/28/1998 2:39 PM
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Don't forget that not everyone who works for
themselves is "self employed". e.g. if you
are the owner of a 1-employee S-Corp, you are
not self-employed (per IRS), so the 13.5% limit
does no apply (you apply the standard 15%, since
you are legally an employee...)



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Author: KCofMaine One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5705 of 76418
Subject: Re: Start a SEP again? Date: 9/28/1998 5:43 PM
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Chris,

In fact, I received paperwork from Putnam Investments, showing they had changed my SEP to a regular individual IRA.

But, none the less, thanks for your help in explaining the nature of the SEP/IRA...and for the heads up on the "Simple IRA" to take the place of the SEP/IRA. Do you have any more info on it?

KCofMaine

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Author: shess Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5706 of 76418
Subject: Re: Start a SEP again? Date: 9/28/1998 7:12 PM
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shess wrote:
<<Also, you might want to look at the SIMPLE IRA plan.>>

I just now saw evidence at the Waterhouse website that SIMPLE contributions can't be moved to a standard IRA for 2 years. Thus, you couldn't convert them to a Roth IRA for that length of time.

This was from http://www.waterhouse.com/ira_simple.html

Later,
scott


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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: 5714 of 76418
Subject: Re: Start a SEP again? Date: 9/29/1998 8:45 AM
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KcofMaine asks:

In fact, I received paperwork from Putnam Investments, showing they had changed my SEP to a regular individual IRA.

But, none the less, thanks for your help in explaining the nature of the SEP/IRA...and for the heads up on the "Simple IRA" to take the place of the SEP/IRA. Do you have any more info on it?


You can read about it in my Foolish Retirement Plan Primer at http://www.fool.com/Retirement/Retirement.htm . Also, you can go to the IRS website and grab Publication 560, Retirement Plans for Small Business (SEP, Keogh and SIMPLE Plans). The link is: http://www.irs.ustreas.gov/prod/forms_pubs/index.html .

Regards….Pixy



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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: 5715 of 76418
Subject: Re: Start a SEP again? Date: 9/29/1998 8:45 AM
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Scott sez:

I just now saw evidence at the Waterhouse website that SIMPLE contributions can't be moved to a standard IRA for 2 years. Thus, you couldn't convert them to a Roth IRA for that length of time.

And if that two-year rule is violated, the distribution is taxed and penalized an additional 25% not 10% for early withdrawal. However, the two years begin on the date of the first contribution by the employer to the particpant's account, not from the date of any contribution. Thus, after the account has been open for two years, contributions may be transferred by the participant without fear.

Regards…..Pixy



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Author: KCofMaine One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5720 of 76418
Subject: Re: Start a SEP again? Date: 9/29/1998 9:08 AM
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TMFPixy
KCofMaine here...

Thanks for your pointer to your previous discussion of SIMPLE IRAs.

KCofMaine

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