Questions and Answers
An individual's employer told him to establish an IRA for simplified employee pension (SEP) contributions. What type of IRA is the best for this purpose? Can the employee also contribute to the same IRA?
An employer must make its SEP plan contributions to each eligible employee's traditional IRA, which may be referred to as a SEP IRA in this case. A SEP contribution may not be made to a Roth IRA.
If an employee is younger than age 70½ and has compensation, he/she is eligible to make a regular IRA contribution to a traditional IRA. The financial organization’s policy may allow SEP contributions and regular contributions to the same IRA or may require separate IRAs for each contribution type.
An employer SEP contribution does not affect the an individual's regular contribution limit. However, receiving a SEP contribution may reduce or eliminate an individual's personal deduction for making a traditional IRA contribution. Professional tax advice is suggested.
(Posted: 07/16/2008)
