An SEP is a retirement plan based on an individual retirement account (IRA) to which business owners can make pre-tax contributions for both themselves and their eligible employees. It's ideal for self-employed, self-employed, and small business owners because it's easy to set up and manage. Whether your company is a sole proprietorship, a partnership, or a corporation, you are allowed to establish an SEP IRA. If you're not a business owner or self-employed and earn income through contracts, you can't independently establish an SEP IRA or make contributions to one.
If you're a single-owner sole proprietor, you can set up an SEP plan and open an SEP IRA online. You'll need to upload an employer agreement and an adoption agreement signed during the account opening. Is not a single owner a sole proprietor? Review the Establish Your Plan section above and follow the instructions to open the account using a printed application. If you are self-employed or have few employees, and if you want flexibility in the amount you contribute annually, especially if you want to make large contributions, an SEP IRA might be right for you.
Your contributions to your SEP plan (which is not a SARSEP) are not reduced by the contributions you or your employer make to your employer's SIMPLE IRA plan. For self-employed individuals, an individual 401 (k) account may offer higher annual contribution limits and greater tax deductions than an SEP IRA, depending on their income. Unlike 401 (k) plans, which are funded by employee contributions that are often matched by employers, SEP IRAs can only be opened and funded by employers. If you don't meet this criteria, your employer can still choose to contribute to an SEP IRA on your behalf, provided that the employer's least restrictive policies apply equally to all employees and also to the employer.
For example, an employer who wants to allocate 10% of his net income to his SEP IRA must also allocate 10% of the workers' salary to his SEP IRA. Once you've established your Schwab SEP-IRA plan, opened your own SEP-IRA, and opened SEP-IRAs for eligible employees (as appropriate), you can start making contributions. Companies with only one employee can take advantage of SEP IRAs, meaning they can be a good option for individual entrepreneurs or contract workers. Having an SEP IRA and another account that deposits funds on your own is a foolproof strategy for maximizing your retirement savings.
But even in some cases where hiring employees simply isn't in play, Henry sometimes advises freelancers to choose an SEP IRA. You can simply multiply your salary by 25% to determine the annual contribution limit associated with your SEP IRA. You can benefit from SEP IRA tax exemptions for a given tax year if you open your account before the annual tax-filing deadline, which is usually mid-April. Rather, it allows the self-employed and small businesses and their employees to benefit from simple, tax-advantaged retirement savings accounts, similar to personal individual retirement accounts (IRAs).
If you're not an employer or self-employed, you can't deduct your SEP IRA contributions from your taxable income. An SEP IRA is a popular retirement investment vehicle for very small businesses and self-employed individuals. Business owners and self-employed people who set up SEP IRAs are making contributions as employers, even if they are the only employees.