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. Can I purchase mutual funds for my IRA?

    Learn how to invest your IRA assets in mutual funds. Discover a few of the different types of mutual funds available for ...
  2. What are examples of cost of goods sold (COGS) for businesses that sell through eBay ...

    Read how online retailers that operate through eBay or Etsy can list certain expenses as cost of goods sold and even claim ...
  3. How do Pay As You Go pension plans work?

    Learn how pay-as-you-go pension plans are different than fully funded pension plans and why some government plans are running ...
  4. Who is eligible for a Teacher Retirement?

    Learn about the retirement option, the Teacher Retirement System, offered to teachers and other public school employees, ...
RELATED TERMS
  1. Senior Move Manager

    Senior move managers (SMMs) help seniors downsize and relocate ...
  2. Elder Care

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

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

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

    Definition of Gold IRA
  6. LLC Operating Agreement

    An LLC Operating Agreement is a document that customizes the ...

You May Also Like

Related Articles
  1. You need to be patient, diligent and perseverant to be successful at investing, but more importantly, you need to start early.
    Investing Basics

    Why You Should Start Investing Early? ...

  2. Investing News

    Looking to Open a Franchise? These Topped ...

  3. Many of us fantasize about winning a big lottery jackpot. Let’s say that actually happened? What would you do with the money? How would you manage it?
    Professionals

    Tips For Managing A Cash Windfall

  4. Retirement

    Planning Ahead for 2015's Tax Law Changes

  5. Even though inflation currently seems tame, it's still the worst enemy of retirees. Here are some tips to reduce its impact.
    Professionals

    Tips For Managing Inflation In Retirement

Trading Center