If you’re self-employed or own your own business with or without employees, you might want to look into opening a Simplified Employee Pension Individual Retirement Account (SEP IRA) or a Savings Incentive Match Plan (SIMPLE).
These tax-advantaged retirement plans can save you big!
For starters, both allow you to contribute pre-tax dollars, reducing your taxable income:
- SEPs’ benefits include minimal setup and management costs. Additionally, they also offer flexibility — you can set one up regardless of the number of employees you have.
- Saving through a SEP allows you to turbocharge your retirement savings. These plans require a mandatory annual employer contribution of 25 percent of a participant’s annual compensation. That is up to a maximum amount of $61,000, whichever is less. Compare that with the annual contribution limits for traditional IRAs ($6,000), and for 401(k), 457(b), and 403(b) plans ($27,000 a year, for those age 50 and older).
These higher contribution limits can make a huge difference:
- SIMPLE plans are, surprise, inexpensive and straightforward to administer. If you’re eligible to set up and/or have access to a SIMPLE IRA, you can contribute up to $14,000 to it this year (the IRS makes an annual cost of living adjustment). If you’re over 50 years old, you can kick in an extra $3,000 a year in catch-up contributions for a total of $17,000 for this year. These plans come with a few catches. Also, they are only permissible in companies with fewer than 100 employees. Companies with SIMPLE plans (and those with SEPs) also can’t offer any other retirement plan.
- Employers who offer SIMPLE IRAs must either match employee contributions dollar-for-dollar. This is at a minimum of 1 percent to a maximum of 3 percent. Or they can make a fixed employer contribution of 2 percent of employee compensation.
- If you take an early distribution within the first 2 years of being enrolled, you’ll face a 25 percent tax penalty. Ouch!
Just as with IRAs, once you reach the age of 72, you must take required minimum distributions from both SEP and SIMPLE accounts.
Call our office today at (972)-446-1040 or 817-498-1040 to find out more
Or Click here to schedule your free 1-on-1 Strategy Session with Beth!
In addition, you can connect with us to receive updates throughout the business week by following us on Twitter or LinkedIn or liking us on Facebook.
Source: Travel Awaits