Benefits of High Limits On The SEP IRA Contribution

If you are self-employed, there is a retirement plan designed specifically for you! A SEP IRA allows you to put away a great deal of tax-deferred money toward your retirement. Independent contractors, sole proprietors, S and C corporations, partnerships and LLCs, as well as small companies can all take advantage of the SEP to shelter retirement savings. The SEP IRA contribution for self-employed people is 20% of net earnings minus self-employment tax. For small businesses , the SEP IRA contribution cap allows for 25% of the eligible employee’s salary per year , at a maximum of $49,000. An employee is defined as at least 21 years of age, working for the company for three of the last five years, and has been compensated with at least $550. For employees, the SEP IRA contribution must be uniform. So if the employer contributes 20% to one employee’s SEP , he/she must uniformly contribute 20% to the accounts of each eligible employee. Contributions are not mandated , so the employer might decide on the percentage and frequency of contributions. Often this decision is made each year after reviewing the company’s net profits and factoring in economic conditions that have impacted the business . Because the contribution cap is high, there is an opportunity to swiftly build retirement savings in the tax-deferred SEP environment. This is an especially enticing benefit for those getting a late start ongetting ready for retirement who would like an accelerated savings alternative. Employees cannot contribute to their SEP unless they are self-employed. A SEP IRA will allow for deferral of asubstantial portion of income into retirement investments where the dollars can grow tax-free. You can make the SEP IRA contribution for the previous year up until the final tax filing deadline, including extensions. The contributions must be made before filing the tax return. There is no provision in a SEP account for the catch-up contribution for olderemployees, but with the appealingly higher SEP IRA contribution ceiling it is feasible to save alarge amount veryrapidly as you prepare for retirement.