Self-Employment and IRA's

cangel
Tue, 14 Dec 2004 11:30:40 +0000

Yeah, its called a SEP-IRA, the “corporation” sets it up for the self-employed person. My closely held corporation uses this as our retirement vehicle, I don’t know (yet) how it is treated for financial aid purposes.
The biggest advantage for us is flexibility in investments and flexibility in making contributions - we are a small medical group with only 2 non-MD employees, so we don’t qualify for most of the more common types of retirement plans, or they are not financially competitive with the SEPs. I don’t begin to know all the rules of SEPs, or the limits, but I do know that you can contribute a certain % of income (?15%) up to a dollar amount ceiling. When SEPs are “paid out” all employees receive contributions, of whatever the % is, of the income they have earned since the last time the SEP was paid. For example, say you paid yourself a salary of 25K/quarter, and the SEP % was 10%, you could contribute 2500 at the end of each quarter to your SEP. If you had 1 employee making 10K/ quarter, you would be obligated to contribute 1000 to his SEP. This of course, means that total net revenues must be at least 25K+10K+2.5K+1K = $38500 to meet the obligation.