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?

By Denise Appleby AAA
A:

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)

RELATED FAQS

  1. Is it possible to collect spousal Social Security benefits before I collect my own?

    Learn if it is possible to collect spousal Social Security benefits before you collect your own. The "file and suspend" method ...
  2. Is a Locked-in Retirement Account (LIRA) protected from creditors?

    Learn about how Canadian registered pension and retirement plans are protected from creditors under federal and provincial ...
  3. What are the restrictions for withdrawing my Locked-in Retirement Account (LIRA) ...

    Learn about Locked-in Retirement Funds and options available for receiving retirement income. Explore circumstances when ...
  4. What is the Superintendent's Register of Authorized Institutions?

    Learn who governs locked-in retirement accounts and other registered retirement savings plans in each Canadian province and ...
RELATED TERMS
  1. Elder Care

    Elder care, sometimes called elderly care, refers to services ...
  2. Cottage Industry

    A small-scale industry often operated out of a home, rather than ...
  3. Peter Pan Syndrome

    A regulatory environment in which firms prefer to stay small ...
  4. Gold IRA

    Definition of Gold IRA
  5. LLC Operating Agreement

    An LLC Operating Agreement is a document that customizes the ...
  6. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
Related Articles
  1. How Does A Reverse Mortgage Work?
    Retirement

    How Does A Reverse Mortgage Work?

  2. 5 Key Factors Your Financial Plan May ...
    Retirement

    5 Key Factors Your Financial Plan May ...

  3. The Right Place To Retire
    Retirement

    The Right Place To Retire

  4. Closing In On Retirement? Read These ...
    Investing Basics

    Closing In On Retirement? Read These ...

  5. Self-Directed IRA: The Right Move For ...
    Retirement

    Self-Directed IRA: The Right Move For ...

Trading Center