Self-Employment and IRA's

Parents Forum
1

<p>Hello:</p>

<p>I hope everyone is surviving the arbitrary nature of admissions just remember that Spielberg was rejected from his #1 back in the day. And conversely, if the news is to your liking, celebrating! As Early Decisions and Early Actions come back it is also almost the end of the tax year.</p>

<p>So, I mean the issue is that a self-employed parent has stock held in such a way that it counts against us for financial aid purposes and it really represents their retirement savings as they have no fallback pension. I know that the aid formula covers a loss allocation yet, it really presumes a large yearly income. Anywho, I was wondering if the government had anything approximating a 401(k) or the Roth IRA for self-employed adults and if so, what are the parameters for establishing one and all the usual mumbo jumbo of contribution limits and establishment dates et al. Neither of my parents have any sort of retirement plan established which is something I'm trying to chide them on. Anyway, any wisdom, information or the like would be appreciated.</p>

<p>Thanks (As Always) For Your Help
Fred</p>

2

<p>The self-employed can set up Keogh Accounts for retirement savings. It is the equivalent vehicle to the 401(k), and is in some ways better.</p>

3

<p>Yeah, its called a SEP-IRA, the "corporation" sets it up for the self-employed person. My closely held corporation uses this as our retirement vehicle, I don't know (yet) how it is treated for financial aid purposes.
The biggest advantage for us is flexibility in investments and flexibility in making contributions - we are a small medical group with only 2 non-MD employees, so we don't qualify for most of the more common types of retirement plans, or they are not financially competitive with the SEPs. I don't begin to know all the rules of SEPs, or the limits, but I do know that you can contribute a certain % of income (?15%) up to a dollar amount ceiling. When SEPs are "paid out" all employees receive contributions, of whatever the % is, of the income they have earned since the last time the SEP was paid. For example, say you paid yourself a salary of 25K/quarter, and the SEP % was 10%, you could contribute 2500 at the end of each quarter to your SEP. If you had 1 employee making 10K/ quarter, you would be obligated to contribute 1000 to his SEP. This of course, means that total net revenues must be at least 25K+10K+2.5K+1K = $38500 to meet the obligation.</p>