Frequently Asked Question

January 30 2006 | Filed Under ยป , ,

I am starting a limited liability company (LLC). I will be the sole member. Can I open an SEP IRA? How much tax-deferred money would I be able to contribute each year?

In a word, yes. A limited liability company (LLC) is eligible to establish a simplified employee pension (SEP). Keep in mind that plan contributions (including SEPs) are usually based on W-2 wages if the business is a corporation. This means that you may need to pay yourself W-2 wages in order to be eligible to receive an SEP contribution from the business. Check with your tax professional to be sure.

Contributions may be as much as 25% of your compensation, and they may not exceed $41,000 (for 2004). For unincorporated businesses such as sole proprietorships, partnerships and limited liability partnerships (LLPs), plan contributions may be up to 20% of the business owner's modified net profit. Should you decide to hire employees, they must also be covered under the plan if they meet the eligibility requirements.

To learn more about setting up an SEP IRA, read Establishing An SEP IRA; Plans The Small Employer Can Establish and Common Questions About Retirement Plans.

Also see IRS Publication 560, available at http://www.irs.gov/pub/irs-pdf/p560.pdf.

This question was answered by Denise Appleby
(Contact Denise)
by

Denise Appleby

Denise Appleby
Denise Appleby is founder and owner of Appleby Retirement Consulting,which provides technical consultation, content, coaching, writing, editing and training services on related topics.


With more than 14 years of experience in the IRA and defined-contribution plans fields, Appleby has held several senior retirement-plan related positions with Pershing LLC, which included vice president of plans products and services, retirement plans manager, trainer, training manager, compliance consultant, technical help desk manager and writer.
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