If you work for yourself and you've had a good year, you may be thinking about putting some of your profits into a retirement plan. One option, a simplified employee pension, allows you to contribute as much as $50,000 extra to your own IRA in addition to your regular IRA contribution limit, as long as you also contribute to the IRAs of any qualified employees. Another feature of a SEP plan is that you have the flexibility of making contributions after the normal IRA deadlines.
You don't have to make up your mind about creating a SEP until the filing deadline for that year's tax return, including extensions. So if you're thinking about creating a SEP for the 2012 tax year, you have until April 15, 2013, to decide. If you file for an extension before April 15, you have all the way until Oct. 15. You can create a SEP at any time by writing up a plan using Internal Revenue Service guidelines, giving copies of the plan to any eligible employees, and opening IRA accounts for yourself and any eligible employees. You don't need prior approval from the IRS, so all this could be done in as little as one day.
The deadlines for making contributions to SEP IRAs are the same as those for creating the plan. You have until the filing deadline for your tax return, including extensions, to put money into the accounts. Even if you've already filed your return you still have until the deadline to make the deposits. So if you file for an extension before April 15, you have until Oct. 15 to make contributions to a SEP IRA for the previous year. This gives you an additional six months past the normal deadline for making IRA contributions. If you do make contributions for the previous tax year, let your banker or fund manager know how you want the contributions credited.
If at any point you decide to amend your SEP plan, you must notify participating employees at least 30 days before the changes take effect. You also must notify participating employees by Jan. 31 of how much money you put into their SEP IRA the previous year.
If you make excess contributions to your SEP IRA, you have until the due date of the return, including extensions, to withdraw the amount before being subject to a 10 percent excise tax. In addition, if you make excess contributions to an employee's IRA, the employee must withdraw the excess by the due date of his return, including extensions, or he could be subject to a 6 percent penalty -- and you could be subject to a 10 percent penalty.
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