Are you looking to start your own business, or be more involved in running the one you’re already a part of? If so, you may be wondering what a SEP IRA is and if it’s right for you. In this article, we’ll take a close look at SEP IRAs and how they can benefit small business owners and the self-employed.
SEP IRAs are retirement savings plans that are available to small business owners and the self-employed. They allow you to set aside a portion of your income for retirement, and you can make contributions for yourself and your employees.
One of the great things about SEP IRAs is that they’re relatively easy to set up and manage. You can open a SEP IRA at most financial institutions, and you can make contributions directly from your business’s checking account.
Another advantage of SEP IRAs is that they offer significant tax benefits. Your contributions are made with pre-tax dollars, so they lower your current taxable income. And, the earnings on your investments grow tax-deferred until you withdraw them in retirement.
If you’re self-employed, you can contribute up to 25% of your net earnings (not including half of your self-employment tax) to a SEP IRA. For example, if you net $50,000 from your business this year, you could contribute up to $12,500 to your SEP IRA.
If you have employees, you’re required to contribute the same percentage of their salary to their SEP IRA. For example, if you contribute 5% of your salary to your SEP IRA, you must contribute 5% of each of your employees’ salaries to their SEP IRA.
The maximum contribution you can make to a SEP IRA is $54,000 for 2020. This limit may be higher in future years, as it’s adjusted for inflation.
SEP IRAs are a great retirement savings option for small business owners and the self-employed. They offer tax benefits, easy set up and management, and the ability to contribute a significant amount of money each year. If you’re looking for a way to save for retirement, a SEP IRA is definitely worth considering.
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