If you haven’t started saving for retirement then you are missing out on free money. Yes, I said FREE MONEY. That’s because the SEP IRA is a tax break for your business AND your contributions grow while you sleep. Dreams do come true!
What is a SEP IRA?
The SEP IRA is an individual retirement account for business owners who want to start saving for retirement and get a tax break. This investment tool is usually used for small business owners or self-employed persons with few or no employees. For 2021, the SEP IRA has a contribution limit of $58,000/ year or 25% of employee’s compensation, whichever is less. Employees can participate if they are 21 or older, have worked for you the past 3 of 5 years, and have earned $600 from you in the past year.
Where is the free money?
Deductions: Contributions to a SEP IRA are tax deferred. This means you get a tax deduction on your tax return during the year of contribution. You pay taxes years later once you begin using those funds during your retirement. Growth: After opening a SEP IRA account, you can choose to invest this money through your provider in stocks, bonds, or mutual funds. Most providers can give you an analysis of what would be best based on your age, retirement goals, and stomach (how risky are you?).
So the “free” money is out there. Are you ready to grab it?
Unlike roth IRAs, SEP IRAs do not require you to pay any tax upfront. You will be taxed when you take the money out for your use.
If you have employees that participate in your company’s SEP IRA program, you must match what they contribute to their accounts.
So when should you take the steps to open a SEP IRA? There is no time like the present! If you have extra money in your account that isn’t/won’t be used… it’s time to grow it and get a tax write off for it. Annnnddd it’s not too late to open a SEP IRA and make a contribution towards 2020. You have until the April 15th tax deadline to fund your account, if you want to take advantage of extra tax savings for the 2020 tax year.
The earlier you set up your SEP IRA, the longer your money can grow before retirement. Plus you get the tax benefits instantaneously.
Want to talk SEP IRAs? Hit reply! Tell me your retirement goals, and I’ll tell you the tax benefits and considerations associated with them.
To financial blessings & fat account balances!