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What Is a SEP IRA and How Does It Work?

Learn more about a SEP IRA and if you qualify for one.

Posted on October 19, 2020

sep ira

Have you talked to your friends lately about their retirement plans? Many people today have started investing and saving for retirement by utilizing IRAs. We all need to know how this works. 

Don't be left out when it comes to understanding different accounts, funds, and prospects. You may be interested in a Simplified Employee Pension or a SEP IRA. If you do not know what this is, you are in luck. We are here to help! 

What is a SEP IRA?

Exactly what is a SEP IRA? If you are like most people, understanding how an IRA works may be a daunting task. You need experts who do this all the time and will help you gain knowledge to take care of your IRA or trust. 

In simple terms, a SEP IRA is a savings plan. As a self-employed individual, this is a plan you can set up for yourself or small business. You make tax-deductible contributions to your employees’ plans. Employers make contributions but employees make the decisions on how the IRA is managed.

A great thing about having a SEP IRA is that they have higher annual contribution limits than standard IRAs. Additionally, these accounts are easy to set up and the costs of administration are typically quite low.

Who Can Have a SEP IRA?

Not everyone can participate in a simplified employee pension. You have to be at least twenty-one years old and you have to work for your company for three years. That is the rule of the IRS. 

Individual companies can be less restrictive but not more restrictive than what the IRS allows.  Employers can decide to exclude certain types of employees from the program, such as union workers. 

Importance of Getting Started

Sometimes the hardest part of retirement is getting started. Many people fail to take this vital step and continue to put it off. The best way to add funds to your retirement is to open an account today. 

If you have a self-directed IRA set up, you might be more likely to contribute money to it. It is like a garden you plant and want to watch it grow. Like that garden, your retirement account takes time to grow. 

Why a SEP IRA Is a Good Option

When it comes to different types of IRAs, things can be confusing. By choosing a simplified employee pension employers can contribute more money. Since all employees have to receive the same contribution, a SEP IRA is mostly used by small companies with no or few employees. 

This type of plan lets employers contribute to their employees' retirement as well as their own. It is a traditional IRA and follows the same general rules as other traditional IRAs. 

The Time Is Now

If you have been thinking about starting a SEP IRA, now is the time to take the plunge! The longer you wait the less money you will contribute. This means the results of your retirement could be much less than you need or want. 

Options for retirement can seem confusing but they don't have to be. To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

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