SEP-IRAs

Question 1

T or F

SEP IRA participants are not eligible for Catch Up contributions

Answer 1

True

Question 2

What is the formula for a SEP-IRA contribution for a W2 employee?

Answer 2

25% of W2, up to the IRS annual limit.

Question 3

Why is a SEP-IRA is considered a Profit Sharing Plan?

Answer 3

It is funded entirely by the employer.

Question 4

What is the formula for SEP IRA contributions for a self employed person?

Answer 4

20% of net self employment income adjusted for 1/2 of payroll tax. This works out to 18.51% of net income.

Question 5

Which of the following are drawbacks of SEP IRAs for companies with employees?

A. Expensive to set up and maintain
B. Contribution percentage must be the same for all employees
C. Can be expensive for employer to fund due to B
D. Employer must fund the SEP IRA every year

Answer 5

B and C only

A - SEPs are very cheap to set up and maintain

D - Unlike a Defined Benefit, Cash Balance Plans, Money Purchase Pensions, and SIMPLE Plans, there is no requirement to fund from year to year.

Question 6

T or F

Withdrawal rules for a SEP IRA are exactly the same as for a regular IRA

Answer 6

True.

The early withdrawal penalty is the same, as are the rules for exceptions

Question 7

For a SEP IRA (or a regular IRA), What the exceptions for the early withdrawal penalty of 10%?

Answer 7

1. Series of Substantially Equal Period Payments
2. Death
3. Disability
4. Qualified Medical Expenses
5. Qualified Educational Expenses
6. First home purchase
7. Correction of an over contribution