SEP Plan Must Be Open to Eligible Employees
Q: I opened an SEP [simplified employee pension plan] individual retirement account when I was an independent contractor. I have since started a sole proprietorship and have employees that have now been with my company three years. My financial planner says I must open my SEP account to my employees or stop funding it altogether. My accountant says I am self-employed and any retirement benefits I want to grant are optional. Which one is correct? I do not pay myself a salary, nor do I receive W-2 forms for my earnings; they are all listed on a 1099.
--Andre Cobb, Los Angeles
*
A: You’d better get a new accountant! If you have established a simplified employee pension plan, then your employees who meet basic eligibility requirements must be admitted to the plan, including part-time employees.
Those requirements are: They are at least 21 years of age, have worked for you during any three of the last five years and have received at least $400 in compensation.
If your employees meet those criteria, you must allow them to participate in the SEP unless they are covered by a collective bargaining agreement and already have pension benefits, or unless they are nonresident aliens.
Whether or not you receive a salary and how your earnings are listed for tax purposes do not affect the rules governing SEP accounts.
For more information, pick up “The Pension Answer Book,” by Stephen J. Krass (Panel Publishers, [212] 597-0200). Chapter 27 covers rules for SEPs in a question-and-answer format that is easy to read.
--Tom Coleman, director
Coopers & Lybrand
San Francisco
*
Q: I have worked in computer consulting, computer applications tutoring and desktop publishing for eight years. I am always doing favors for friends--helping them install, configure and maintain their computers, teaching them how to use software and doing desktop publishing for my church and other organizations. I would like to start a business and earn extra income. Can you give me some guidance?
--Robert Taylor, Los Angeles
*
A: There are a large number of people who do exactly what you’re talking about, and I think there is a ton of activity in this field right now. A lot of opportunities exist that you could tap into.
I suggest you start on a project-by-project basis, charging a fixed price for a certain job or asking a per-hour fee if the job is more open-ended and you can’t really tell how much time it will take. The nature of this field makes it easy to work for your clients during your off hours and weekends. I would not quit a full-time job to do this until you have established some regular clients and have a good idea of how much you can earn.
Start by pricing aggressively--meaning low--to build up relationships with your first few clients so they will refer you to others.
But don’t continue to do the work pro bono if you really want to make a business out of it.
As you build up clients, keep testing the market to see what price you can command.
--George Geis, adjunct professor
Information systems
Anderson School of Business, UCLA
*
Q: I would like to start an auto insurance business. Would you please tell me what license I need and who I can contact for it? --Muhammad Zaman, Fullerton
*
A: To become an insurance agent, you must obtain a California insurance agents license. You must complete 52 hours of classroom time, including 12 hours of ethics, pass a half-day licensing exam and complete 30 hours of continuing education each year to keep your license.
You can find insurance agents licensing classes through many local trade schools. Look in your phone book under “Insurance” or call your own agent and ask if he or she can recommend a course for you. Most cost about $200 and include weekend cram courses designed to help you prepare for the exam.
Insurance is a very specialized field, and it takes a large investment of time to develop the skills, clients and contacts needed.
I suggest that once you’ve obtained your license, it is best to start by working for an agent already plugged in to a mainline agency.
--Rodney Bertholet
Chartered life underwriter/
Chartered financial counselor
Monrovia
If you have a question about how to start or operate a small business, please mail it to Karen E. Klein in care of the Business Section, Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia, CA 91016; or e-mail it to kklein6349@aol.com. Include your name, address and telephone number. The column is designed to answer questions of general interest. It should not be construed as legal advice.
