An IRA option for the self-employed
Q How do SEP IRAs work? Can they be used with other IRAs? What are their limits? Is there a better investment plan for the self-employed?
K.R.,Oregon City, Ore.
A"An SEP IRA is an expanded IRA for a small-business owner or a self-employed person," says David Bendix, president of Bendix Financial Group, Uniondale, N.Y. (SEP means Simplified Employee Pension.)
Any financial firm that offers regular IRAs can set up SEP IRAs, Mr. Bendix says. An SEP IRA lets you shelter up to 15 percent of your net income each year, unlike a regular IRA, which has a limit of $2,000.
Another advantage: If you need an extension to file your taxes, you don't have to fund an SEP IRA until the new deadline. (Regular IRAs have to be funded by April 15.) The paperwork is minimal.
It can also be rolled over into a regular IRA. The main alternative to an SEP IRA is a Keogh plan, but Keoghs are used mainly by high-income self-employed people They also require extensive paperwork. "The SEP IRA is far simpler, and requires less government supervision," says Bendix.
Q I just left my job, and will be required to take a distribution of a very small amount of money in an employee contributory retirement plan. I would like to roll it over into a mutual-fund IRA, but most funds require a minimum initial contribution of $1,000 to $2,000. The amount in my small plan is less than $200. Is my money somehow "left out" of a rollover?
C.J., New York
A Not at all. Some mutual-fund firms will accept small amounts on rollovers, in effect waving initial-contribution rules.
Call the fund groups of your choice to check out their policy. Pax World, for example (800-7767-1729), will allow a rollover of less than $200, even though their regular initial contribution amount is $250.
Q Can you get me the addresses of three Internet-based banks? They are Security First National Bank, Net Bank, and Telebank.
A.D., Woodville, Texas
A Security (www.sfnb.com) can be reached at 3475 Piedmont Rd, Suite 200, Atlanta, GA 30305; Net Bank (www.netbank.com) is at NetBank, Royal Centre Three, Suite 100, 11475 Great Oaks Way, Alpharetta, GA 30022. Telebank is now Etrade bank (www.etradebank.com) , and is at 1111 North Highland St., Arlington, VA 22201. Guy
Questions about finances? Write:
Guy Halverson
The Christian Science Monitor
500 Fifth Ave., Suite 1845
New York, NY 10110
E-mail: halversong@csps.com
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