Key Takeaways of the SEP IRA

Key Takeaways of the SEP IRA

April 15th will be here in a blink of an eye. Are you self-employed or a small business owner?

A SEP IRA (Simplified Employee Pension IRA) is a retirement account for self-employed individuals or small business owners. Business owners, whether they have employees or work independently, can use a SEP IRA to save for retirement. This account stands out because it offers higher contribution limits than traditional and Roth IRAs, making it a popular choice for those who want to save more for retirement.

The SEP IRA’s main advantage is its high contribution limit. For 2018, the maximum contribution was $55,000, and business owners can contribute up to 25% of each employee’s pay. Self-employed individuals face a more complicated calculation, as their contributions are based on net profit, using a rate of approximately 18.6%. These contributions are tax-deductible, lowering taxable income for the year and reducing future taxes when funds are withdrawn during retirement.

A SEP IRA offers flexibility for business owners. They can choose to contribute anywhere from 0% to 25% of their earned income each year, without mandatory contributions. However, employee elective deferrals and catch-up contributions are not permitted. Business owners have until the tax filing deadline, either April 15th or October 15th with an extension, to make contributions for the prior year.

Check out our new infographic for a quick overview of the benefits, limits, and deadlines. http://bit.ly/Sep_IRA

Published On: January 17, 2019|Categories: Resource Center|Tags: retirement, taxes|

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