Saving money for retirement is a smart choice for people that want to plan for their future. There is no one size fits all retirement plan, but there is an option available for just about everyone to save for their future retirement.
The SEP IRA is available for those that are self-employed or own a small business. This plan is similar to a 401K account. The contributions that people make to their SEP IRA account are usually 100% tax deductible, and the money invested into the account will grow tax deferred. If this is a plan that you can take advantage of, it is worthwhile to research further and invest if it is the right plan for you.
Not everyone will qualify to participate in the SEP IRA plan. Those that do qualify include people that are self-employed, own a small business, sole proprietorships, partnerships, LLCs, and S and C corporations.
SEP IRA plans are often used by people that are self-employed without any employees, but it can also be used as a smart retirement plan for small business owners that have employees, too. Each person that qualifies to open a SEP IRA account, must open their own individual SEP IRA account.
The tax benefits for SEP IRA accounts is similar to 401K plans. Money that is invested into the account has tax deferred growth and the contributions are also tax deductible. There are no establishment fees or annual fees to take part in the SEP IRA plan.
In 2011, the maximum contribution limit for a SEP IRA account was $49,000. In 2012, the maximum contribution was raised to $50,000.
An employer may contribute up to 25% of the employee’s wages. Employers must use the same rate for all of their employees, so if they have it at 25% for one employee, they must contribute that amount for all employees that take part in the plan. Employers are able to change the amount contributed for their employees each year, but it still must remain the same percentage for all of their employees.
If the person is self-employed, they may contribute up to 18.587045% of their wages into their SEP IRA account.
Once someone reaches 70.5 years old, they will start to have the minimum amount from their account distributed. Money taken out after the person on the plan is 59.5 years old does not pay a penalty for withdrawing money, but is subject to paying the income taxes on the amount that is withdrawn.
If someone is 59.5 years old or younger, and they want to withdraw money from their account, they will have a 10% withdrawal penalty for taking money out of the account early. Those that withdraw money early will also have to pay income taxes on the amount withdrawn.
To have the withdrawal penalty waived, the person must meet one of the following reasons for taking money out of the account early:
This post was published on April 6, 2012