Retirement Investing: SEP-IRA
Image by massdistraction via Flickr
One of the issues plaguing many self-employed folks is how to take advantage of retirement investing without an employer’s plan to make use of. The good news is that there are options for the self-employed to invest in their future. An IRA or a Roth IRA is an option, but there is also a type of retirement investment account for the self-employed called a SEP-IRA.
SEP-IRA
A SEP-IRA is a “Simplified Employee Pension”. Only employers can contribute to a SEP-IRA, and they do it on behalf of their employees. If you are a sole proprietorship, or a very small business (I am an LLC), you can use the SEP-IRA to ideally make contributions on your own behalf. This can be helpful, since it can result in larger contributions than if you have a traditional or Roth IRA. With the SEP-IRA, your contribution limit is the lesser of $49,000 or 25% of the employee’s compensation. (If you are doing it for yourself as a self-employed business owner, your compensation is your earned income.)
When you make a contribution to a SEP-IRA, it is not included in employee income at the time of the contribution, and it is deducted from the employer’s income. Which can be helpful if you are a self-employed business owner. Note that SEP-IRAs follow the same withdrawal rules as a traditional IRA — a SEP plan will not work as a Roth IRA.
My Dollar Plan offer this helpful insight into the pros and cons of the SEP-IRA:
SEP-IRA Pros
Sole proprietors or employers with just a few employees love SEP-IRAs because they are easy to establish and require little effort from year to year. The ability to choose whether or not to make contributions is also ideal for business owners with highly variable income from year to year. Finally, the late contribution deadline makes it easy to use a SEP-IRA to lower your tax bill after you calculate it.
SEP-IRA Cons
Because a SEP-IRA requires contributions to all employees, it is not a good plan for someone with employees who only wants to beef up his or her own retirement savings. It is also not good for businesses with employees that want to be able to contribute to their own accounts. Finally, the SEP-IRA may not maximize savings opportunities for business owners because of the way self-employment income is treated.
It is important that you invest in your future with a retirement account, even if you are self-employed. This is just one of the options that you can consider.



![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=0938da09-3022-4c68-8ed6-c4c8fa85297a)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=bd9f4104-2a31-4026-a490-f7d4ca5b5e3b)