Elgin Illinois Form 5305-A-SEP 2006-2025

Elgin Illinois Form 5305-A-SEP: What You Should Know

The Form 5305-SEP forms required are in two sets. The standard set is a simplified SEP plan. The second set of Form 5305-SEP forms are for Solo 401(k)s. If you set up a new Solo 401(k) with an IRA in the first year (for a new business) and then make a SEP-IRA, the solo 401(k) would be tax-advantaged with an ordinary tax rate of about 12.75%, or about 11% less than the SEP-IRA. Even a solo 401(k) established with a SEP-IRA in the first year may be tax-advantaged under certain circumstances. For a solo 401(k), for example, if the SEP-IRA contains regular, annual payments as described above, the early Roth conversion penalty for the solo 401(k) plan is reduced. This is the result of Section 72(t)(2)(C)-1(a)(1), which says that the penalty for a Roth conversion of an IRA to a solo 401(k) will be paid when the IRA is converted.  To date, about 60% of U.S. employers have elected to take advantage of the 10% early Roth conversion penalty under Section 72(t)(2)(C)-1. If your employer is not eligible, the penalty is zero. As stated in a post at Retirement.com last year: An employer can avoid the 10% penalty on a regular IRA for a sole proprietor if it's established as a Solo 401(k). See a summary post from the Tax Policy Center at the Brookings Institution. A solo 401(k) is created when an employee makes an election if she makes her first SEP elective deferral for that plan in her first year of eligibility with that employer. As the blog post says: Solo 401(k) is a special type of SEP that can be established with an IRA for anyone that is already covered by a traditional defined-contribution plan. The tax advantage is that the maximum annual contribution per person is 17,500 (including both regular contributions under SEP-IRA and contributions made after the early Roth conversion penalty is paid) with no additional penalty. The benefit is that the early Roth conversion penalty for a Solo 401(k) is reduced by the early Roth conversion penalty for the standard SEP.

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