SEP IRA in a Nutshell

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Do you operate a small business and are looking to benefit yourself and employees with a tax saving retirement plan? Well say “goodbye” to the expensive 401k retirement plans and say “hello” to simplified employee pension (SEP) plan. The SEP is a retirement plan available to help small business employees and employers to lower their taxable income by funding a retirement account (SEP) with tax deductible contributions to save for retirement.

So, you’re probably asking yourself, who is eligible to receive these funding’s? Any self-employed individual, sole practitioners, employees who are 21 years of age or older, have worked for the employer in at least 3 of the past 5 years, and have received a minimum of $600 in compensation from the employer in the past year. Employers have the opportunity to make contributions that cannot surpass the lessor of $57,000 or 25% of the employee’s annual compensation or 25% of net income in the case of a self-employed/sole practitioner individual. A S corp can contribute into a SEP IRA up to 25% of the W-2 compensation.

SEP IRA’s are perfect saving modules for self-employed individuals or sole practitioners because the higher maximum contribution limit of the SEP IRA gives individuals the opportunity to contribute a greater amount than they would be able through an IRA.

There are no restrictions to contributing to a SEP IRA or Traditional IRA however there is income limits on deducting the contributions.

SEP contributions can reduce taxes that are calculated based on adjusted gross taxable income. Income generated in a SEP IRA is tax deferred.

Being the entrepreneur of a small business takes guts, hard work, and most importantly a vision for how you would like to see your dedication evolve into. Think of a SEP as a vision to what your future can have in store for not only yourself, but the hard-working individuals who have believed in you and are ready to see growth. The SEP is an extremely useful instrument that can be utilized to benefit yourself and the employees supporting you.

How to fund a SEP IRA?

  1. Create a formal written agreement. IRS form 5305
  2. Give employees information about SEP IRA
  3. Setup the SEP IRA account

Financial Freedom Capital Management can help set up the account for you as well as continually managing your portfolio to your best interest. FFCM is a fiduciary advisor that places client’s best interests before our own. With the utmost loyalty and consistent pursuit to excellence we are always here for our clients to answer their questions and help them with their journey to financial independence.  Call or email to speak to one of our advisors today.

Give us a call today to arrange a discussion with one of our advisers who will talk you through your options and point you in the best direction.

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