Self-employed people favor the SEP IRA because the
accountoffersnumerous benefits, including thepossibility for greater
contributions. Contributions SEP IRA are calculated differently for the
self-employed, since theynormally do not receive wages. The self-employed have
net profits from their business venture.
A self-employed person can contribute
20% of net profits up to $44,000 yearly. To determine the contribution amount
permitted take the net self-employment income and subtract one half of the
self-employment taxes. The resulting net/net self-employment income is then
multiplied by 20% to determine the maximum contribution amount allowed. With
these more generous contributions SEP IRA there is an opportunity to save a lot
more funds for retirement at a quicker pace.
This benefit is particularly
attractive for people who may have gotten a late start saving in preparation
for their retirement years. Contributions SEP IRA for the prior year can be
made up until the final deadline, including extensions, for tax filing.
However
the contribution must be made prior to that filing. A SEP account
isuncomplicated to establish and known for the simplicity and low-cost of
managing it . The SEP IRA functions like a traditional IRA when it comes to
distributions.
Those withdrawals are taxable at the rate in effect at the time
of disbursement , and there is a penalty if any withdrawal is taken before the
age of 59 ½ years old. The SEP can be rolled over into another type
of IRA since thecash it holds istotally vested as soon as it is contributed.
A
SEP account is an appropriate choice for S and C corporations, sole
proprietorships, partnerships, and LLCs. Small companies that might not have
the resources to offer a conventional retirement plan for their employeesoften
decide on a SEP plan, and can contribute up to 25% or $49,000 annually on
behalf of the qualified employee.
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