SEP IRA - Quest Trust Company

Types of Small Business Retirement Plans

Posted on October 11, 2017August 13, 2019 by Juan Deshon

Estimated reading time: 3 minutes

It seems as though a new era is emerging; small businesses are growing more and more popular and soon they are going to be the staple of modern culture. As more and more people move away from large companies it becomes increasingly more important to educate yourself on the steps you should be taking in order to ensure a comfortable future for yourself and, if you’re a business owner, a comfortable future for your employees. Below are a few retirement options to compare that are best suited to small businesses.

One option for a small business, more specifically in-home businesses that consist solely of the owner and possibly a spouse, would be the Solo 401K Plan. Similar to other retirement plans both the employer and the employee contribute however, because you are self-employed you hold both titles. Salary deferrals up to a certain amount are available as well as up to 25% of compensation of the annual maximum.

Another good option for small business is the Simplified Employee Pension Plan (SEP). While SEP’s can be used by any businesses, it is recommended for small businesses. This plan is different than some of the other traditional ones in the fact that it is fully funded by the employer and they contribute up to 25% of an employee’s eligible compensation a year. Each eligible employee must have an individual SEP account and will receive the same percentage of compensation as all other eligible employees.

Many small business that have 100 employees or less will often have a Savings Incentive Match Plan for Employees (Simple IRA). In order to be eligible for this plan the employer must have earned at least $5000 in the previous year, and any employees must have earned at least $5000 from the employer for the two prior years and have an expected $5000 income in the upcoming year. This plan is funded by employer and employee. Employers have a mandatory matching contribution and employees can potentially have 100% compensation if the amount is less than the set total.

One of the most well-known retirement plans is the 401K Plan. This plan allows for the employee to make personal contributions up to a certain amount per year however, one of the main advantage of this plan is that there are many investment options open such as mutual funds. Employers are also required to make a certain percentage of matching contributions. This plan is more popular with some of the bigger companies and corporations.

If you are considering getting involved with a small business or opening up your own, it is important to stay informed and know all your options. These are some of the more established retirement plans in place currently, but if none of these seem like the right fit for you, don’t be discouraged, there are still other viable options. There may be some other slight variations of the plans covered above that are more catered towards what you want. Prepare for your future and decide what you’re looking for now so that when the time comes for you to retire, you’ll be able to transition with ease.

What Is a SEP IRA?

Posted on October 10, 2017April 13, 2021 by Juan Deshon

Estimated reading time: 2 minutes

A SEP IRA is a retirement fund made for people who are self-employed and people who own businesses. SEP stands for Simplified Employee Pension and IRA stands for individual retirement accounts. It is a really basic account for retirement, just like traditional IRA. Contributions made to these accounts are tax deductible, and until retirement, investments are tax-deferred until a person has reached retirement. At that point, distributions are taxed as income.

Who is it best for?

When considering if it’s good for you, it is important to consider if you currently have employees who the IRS would consider eligible to be participants, you must make contributions on their behalf, and the contribution should be an equal compensation to yours. Participants who are eligible are 21 years or older, have worked for you for three years out of five, and in the past year, have earned $600 from you within the past year. Because there is a rule that requires equal compensation of contributions, SEP IRAs are usually best for people who are self-employed, or people who own small businesses but have few employees.

Are there contribution limits, and if so, what are they?

The limits are what make SEP IRAs stand apart from traditional IRAs. For a self-employed individual, contributions are limited to 25% of your net earnings from self-employment (not including contributions for yourself), up to $58,000 (for 2021; $57,000 for 2020). Employers contributions don’t reduce the contribution you can make to an IRA, but your traditional IRA contribution can be reduced when you’ve reached higher income levels when you combine both plans, if you are an employee that gets covered by them.

How Can I Open an Account?

The process for opening an account is very similar to the process of opening a traditional IRA. A good number of people who provide IRA accounts also offer SEP IRAs, and the account can be opened online.

The steps are as follows:

1. Make a written agreement. This can be done with an IRS form, or it can be done through the company that provides the account.

1. Make sure eligible employees are informed about the SEP IRA. Information can be obtained through the account provider, or they can be given a copy of IRS Form 5305-SEP.

Each eligible employee must have a separate SEP IRA account, so it’s important to set that up with the employee provider.

How Do I Invest my SEP IRA?

Understanding that a SEP IRA is not an actual investment is super important. You can choose from offered investments once the account has been opened. Options usually include mutual funds, stocks, and bonds. The less time there is towards retirement, the more important bond funds will become. You can also look into index funds for bonds.

Techniques for Making the Maximum Contributions to Your Self-Directed IRA

Posted on August 17, 2015April 13, 2021 by questadmin

Estimated reading time: 3 minutes

Appropriate and suitable investing is certainly one key to accumulating a large enough nest egg by the time you’re ready to retire. But at least as important as your investment approach is you making regular contributions to your account (as in, doing so every single year), and contributing as much as possible (that is, up to the permitted contribution limits for your retirement account).

Giving your account contributions the greatest amount of time to grow is something that you can’t make up in later years. Since your annual contributions to a self-directed IRA are capped, if you miss the opportunity to make a maximum contribution to your account in any given year, you’ll never be able to recapture that opportunity later.

For the 2021 tax year, the maximum annual contribution to a self-directed IRA is $6,000 (or $7,000 if you’re age 50 or over). Here are some techniques for making that maximum contribution to your account this year, as well as in all future years before retirement.

Use Your Tax Refund.

While the most financially prudent situation is to neither owe taxes nor be due a refund at the end of the year (since no refund means that you haven’t given the government an interest free loan of the excessive withholdings that were made from your paychecks), many people still like the “forced saving” element of getting a refund check after they file their returns.

Receiving a refund that may amount to several thousand dollars, or more, these taxpayers now have access to a lump sum of money that they perhaps wouldn’t have been able to accumulate otherwise. While many individual choose to use their refunds as an opportunity to splurge, or treat themselves to something nice, consider this: using your refund check to make some or all of your annual self-directed IRA contribution will free up your budget later and provide you with greater financial flexibility.

In fact, if you file early enough in the year, you may be able to receive back your refund check in plenty of time (that is, before tax filing deadline) in order to make some or all of your self-directed IRA contribution for that same tax year.

Incorporate Your Contributions into Your Monthly Budget.

Because the key to success in retirement saving is consistency, you can meet your annual contribution goal by taking steps toward that goal each and every month. Determine how much you need to contribute each month to make the maximum contribution, and work that amount into your budget.

Auto-Debit or Direct Deposit.

Even if you don’t have a formal budget set out for your family, you can still meet your monthly savings target by utilizing tools such as direct deposit (have an appropriate amount taken out of your paycheck each month and deposited directly into your self-directed IRA), or automating monthly transfers from your checking or savings account to your self-directed IRA.

Three Key Diversification Principles For Self-Directed IRAs

Posted on April 10, 2015August 12, 2019 by questadmin

Estimated reading time: 3 minutes

Most investors are at least somewhat familiar with the concept of diversification, even if they don’t give it much thought or put the notion into practice within their own accounts. And while some investment commentators might occasionally proclaim that the idea of diversification is outdated, most experts recognize its importance even today.

The basic theory of investment portfolio diversification holds that by investing in more than just a single asset, the investor can reduce their risk of losing a significant portion of their portfolio if that one asset were to decline in value. Diversification is one reason that mutual funds and exchange traded funds are a more popular choice than individual stocks for many investors.

Diversification can become particularly important with an account such as a self-directed IRA, because there are so many more investment choices available to self-directed IRA account holders and those who have their retirement funds with a traditional custodian. Here are three key diversification principles to keep in mind.

Diversify Not Just For Your Age, But For Your Investing Profile. Discussions of diversification often start with your age. The argument is something along the lines of taking a more aggressive diversification stance younger in life so that you have the best opportunity to maximize your nest egg, while keeping in mind that you’ll have more time before retirement to recoup any losses that may result from such a stance.

But you also need to take into account your individual investing personality. How risk averse are you, generally speaking? Does the prospect of losing money, even if it comes with the opportunity to gain more, keep you up at night? These types of questions should give you some idea of your starting approach for retirement account diversification.

Don’t Over-Diversify. By this we simply mean that while diversification should be an important principle to incorporate into your retirement investment decisions, it shouldn’t be the sole driver of your actions.

For example, if you have a large investment in your self-directed IRA that has performed very well and now represents a significant part of your portfolio, your diversification principles may suggest that you sell the investment in order to maintain a “proper” investment mix. However, if you still have significant confidence in that investment, you may not wish to get rid of that quite yet.

Furthermore, if you’re faced with significant transaction costs in connection with trying to meet some diversification goal (such as selling real estate holdings or private investments), then this may impact your decision.

Different Considerations During Retirement. How will you be using your self-directed IRA during retirement? Will it be your principal source of retirement income, or do you have other adequate sources of income (such as employer-sponsored 401(k) plans, employer pensions, and Social Security) and want to use your self-directed IRA as more of an investment and/or estate planning tool?

In addition, if you plan to use your self-directed IRA to make pre-retirement withdrawals in order to help your children or grandchildren with educational expenses, medical expenses or even down payment assistance for their first homes, then you’ll want to be sure that you have appropriate liquid assets available in order to withdraw on the appropriate schedule.

Is Your IRA a Truly “Self-Directed IRA”?

Posted on November 12, 2013November 29, 2018 by questadmin

Estimated reading time: < 1 minute

Owning a self-directed IRA may be the key to your comfortable retirement. A self-directed IRA is an individual retirement account where the owner directs all investments. There is no legal distinction between a self-directed IRA and any other IRA, except that with a truly self-directed IRA, the account agreement allows the broadest possible spectrum of investments. There are several types of accounts that can be self-directed, such as Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, 401K, Coverdell Education Savings Account and the Health Savings Account.

You can use your self-directed IRA to purchase almost anything such as assets like real estate, promissory notes, non-publicly traded company stock, limited partnerships, tax liens, LLCs and much more. Self-directed IRAs allow you to invest in what you know best!

Quest Trust Company has been the leader in self-directed IRAs for over a decade. Open an account us and take control of your financial future.