self directed 401k
Self Directed 401k
Self Directed 401k
Created by the Economic Growth and Tax Relief Reconciliation Act of 2001, the self-employed, orÂ SEP 401K was designed to give individual entrepreneurs an opportunity to have tax-deferred retirement savings. The government realized that only a small percentage of self-employed individuals had a retirement program they were contributing to . It was important to offer a low maintenance plan for businesses that had a single employee, the owner, and provide them with an opprtunity to save for their retirement . Out of that legislation came the Solo, orÂ SEP 401K. The plan is available for any type of ownership structure, Subchapter S and regular corporations, sole proprietorships and partnerships. The plan can be set up by a company with no employees other than the owner, the spouse, partners and shareholders. Contribution caps are generous in theÂ SEP 401K, $49,000 per year for people under 50 years old and $54,500 for age 50 and over . The contributions have two elements : employee contributions of 100% of net adjusted business income, capped at $16,500 under 50 years old and $22,000 for 50 plus, and employer contributions known as profit sharing, limited to 20% of net adjusted business income. With this two front opportunity , the SEP 401K provides an excellent opportunity for the self-employed individual to quickly grow their retirement nest egg. The SEP 401K also allows pre-retirement loans, and manybusinesses also qualify for a special tax credit that will partially cover the set-up and administrative costs of the plan in each of its first three years. As with a regular 401K, money contributed to the SEP 401K is tax-free and grows tax-deferred until it is withdrawn , as early as at age 59 Â½ years old. A penalty of 10% is imposed on distributions taken before that unless it is a qualified exception to regulations . Mandatory distribution of SEP 401K funds starts no later than age 70 Â½ years old. Look into theÂ Sep 401K plan and find out how to shelter a lot of savings from the tax collecter.
Self-employed, orÂ SEP 401K, is a name for the individual 401K, one of the newer retirement plans provided for the specific needs of the self-employed or small business owner. For people who qualify, the SEP 401K authorizes especially generous contributions, which can mean larger tax deductions and lower taxable income. Depending on how the program is set-up, it may also allow for tax-free loans. The loans must be repaid according to the loan amortization schedule to avoid a default that results in taxes and IRS penalties. Self-employed individuals and business owners with no employees other than a spouse are eligible to set up the plan for their business . Also qualifying for the Sep 401K are sole proprietorships, partnerships and Subchapter S and C corporations. Like other 401K plans, the distributions on aSep 401K can begin at age 59 Â½ years old and must begin no later than age 70 Â½. Taking withdrawals early will trigger taxes and incur a 10% penalty tax. The SEP 401K plan allows for generous contributions with higher limits, as well as profit-sharing contributions, and also provides extra contribution raises for people over the age of 50 to â€œcatch upâ€ on their nest-egg savings. Â The government recognized that there was no favorable retirement program for the self-employed, and in truth only a small number of self-employed individuals have a retirement plan in place . The Economic Growth and Tax Relief Reconciliation Act of 2001 went into effect on January 1, 2002, creating the SEP 401K by virtue of altering the regulations on existing 401K plans. The idea was to make available a low-cost, easily administrated plan to encourage the self-employed to start saving toward their retirement. TheÂ SEP 401K meets their needs and has become an increasingly popular choice for the sole proprietor. Look into theÂ SEP 401K and accelerate preparing for your retirement
Unlike the traditional version, the self-employed, orÂ SEP 401K is low cost to create and manage . Thanks to new federal legislation voted on in 2001, self-employed individuals have an opportunity to shelter retirement savings through the Solo or SEP 401K. There are no complicated rules and forms to deal with ; the basic IRS Form 5500 won’t even have to be filled out and filed until the account reaches $250,000. Unlike a traditional 401k, theÂ SEP 401K allows owners to contribute up to 25% of their yearly wages to themselves in the form of profit-sharing, in addition to regular contributions. So for many people , the two forms of contributions will rapidly build their retirement savings .Â The plan is flexible enough to authorize pre-retirement loans, and under certain conditions can also be set up as a self-employed Roth 401k that revises the tax flow: money is taxed as income when contributed, but then grows tax free and is also tax-free at withdrawal . Most businesses that qualify for theÂ SEP 401K are able to get a tax credit of $500 that covers up to half of the cost of setting up and administering the plan during each of its first three years. Small owners will benefit from the contribution caps and tax advantages of the SEP 401K. Only a small number of people working for themselves are covered by a retirement plan, so the government has structured the SEP 401K easy to set up, use, and manage to encourage retirement savings among that group . The plan is generally limited to companies with one employee, the owner, although the spouse can contribute, too. Ownership structures are not limited, so the SEP 401K plan works for regular corporations as well as partnerships, Subchapter S corporations, and sole proprietorships. With noticably higher contribution limits than many other retirement alternatives, theÂ SEP 401K is an excellent and popular option for the self-employed
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From the supplier: Many workers are dissatisfied with their company retirement plans because these plans frequently proffer a very limited selection of investment choices. An increasing number of 401(k) plan sponsors has addressed this need by providing self-directed brokerage accounts that enable employees to select any eligible investment and trade it at any time through a broker. However, employers continue to be concerned about the liability costs involved such plans despite their promise.
Title: Manage your own retirement plan. (self directed 401.(k) plans for employees)
Author: Gregg Rose
Publication: Strategic Finance (Refereed)
Date: July 1, 1999
Publisher: Institute of Management Accountants
Volume: 81 Issue: 1 Page: 44(5)
Distributed by Thomson Gale
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