contribution limits

[ville4life]

am i missing something, or are the annual contribution limits for a SEP-IRA a lot higher than either a traditional IRA or 401k? if i'm not missing anything, what's the reason for the difference?

[Angie]

Here's more than you ever wanted to know, with links to Fidelity website.



About SEP-IRAs

A Simplified Employee Pension Plan, commonly known as a SEP-IRA, is a retirement plan specifically designed for self-employed people and small-business owners. Its key features are highlighted below. When establishing a SEP-IRA plan for your business, you and any eligible employees establish your own separate SEP-IRA; employer contributions are then made into each eligible employee’s SEP-IRA.
http://personal.fidelity.com/images/goldbulsquare.gifPlan eligibility (http://personal.fidelity.com/products/retirement/getstart/newacc/sepira.shtml#plan)http://personal.fidelity.com/images/goldbulsquare.gifTax advantages (http://personal.fidelity.com/products/retirement/getstart/newacc/sepira.shtml#tax)http://personal.fidelity.com/images/goldbulsquare.gifSEP-IRA deadline (http://personal.fidelity.com/products/retirement/getstart/newacc/sepira.shtml#sepira)http://personal.fidelity.com/images/goldbulsquare.gifContribution flexibility (http://personal.fidelity.com/products/retirement/getstart/newacc/sepira.shtml#contribution)http://personal.fidelity.com/images/goldbulsquare.gifOther key advantages (http://personal.fidelity.com/products/retirement/getstart/newacc/sepira.shtml#other)http://personal.fidelity.com/images/goldbulsquare.gifSpecial Fidelity benefits (http://personal.fidelity.com/products/retirement/getstart/newacc/sepira.shtml#special)http://personal.fidelity.com/images/goldbulsquare.gifOpen a Fidelity SEP-IRA (http://personal.fidelity.com/products/retirement/getstart/newacc/sepira.shtml#open) Plan eligibility


You can establish a SEP-IRA if you: • Are a sole proprietor, in a partnership, or a business owner (of either an unincorporated or incorporated business, including Subchapter S corporations);• Earn any self-employed income by providing a service, either full-time or part-time, even if you are already covered by a retirement plan at your full-time job.Top (http://personal.fidelity.com/products/retirement/getstart/newacc/sepira.shtml#top)

Tax advantages

Tax-deductible contributions • Up to 25% of compensation, as much as $42,000 for the 2005 plan year and $44,000 for the 2006 plan year.*Tax-deferred growth potential • Any investment earnings grow tax-deferred until withdrawn.* The maximum compensation on which contributions can be based is $210,000 for the 2005 plan year and $220,000 for the 2006 plan year. For self-employed individuals, compensation means earned income.
Top (http://personal.fidelity.com/products/retirement/getstart/newacc/sepira.shtml#top)
SEP-IRA deadline


The deadline to open and contribute to a SEP-IRA is: • Your tax filing deadline (including any extensions).• For most self-employed individuals and small-business owners, that deadline is usually April 15.Top (http://personal.fidelity.com/products/retirement/getstart/newacc/sepira.shtml#top)

Contribution flexibility

No annual contribution required • Contribution percentage can vary each year, from 0% - 25% of compensation, up to $42,000 per participant for the 2005 plan year and $44,000 for the 2006 plan year.*• All SEP-IRA contributions must be made by the employer, and the same percentage of compensation must be contributed for each eligible employee (based on W-2 wages) including the employer.• Use our worksheet to calculate your SEP-IRA contribution (http://personal.fidelity.com/products/retirement/getstart/newacc/sepiracalc.shtml).* The maximum compensation on which contributions can be based is $210,000 for the 2005 plan year and $220,000 for the 2006 plan year. For self-employed individuals, compensation means earned income.