Most people are now familiar with the acronym IRA (Individual Retirement Account). These accounts have become popular for a number of reasons. Each particular type, such as an SEEP (Simplified Employee Pension) Ira’s, offer some options that may appeal more than other account types. Understanding the retirement options that are available to you can help you to make the most effective choice when planning your future.
SEP
The SEP IRA option is shaped to provide what self employed individuals and owners of small businesses may need. There are limitations to which businesses can be owned to qualify for a SEP IRA. You may need to consult a financial planner to determine if you are eligible.
Contribution
SEP IRA contribution limits are regarded as being among the highest of IRA accounts. While the specific numbers may change from to time, limits were set to $49,000 (US) in 2009 and 2010. There have also been percentage limits. For instance, you are only allowed to contribute up to 25% of your income each year. Employers are allowed to contribute to an SEP IRA, but as the IRA is focused on the self-employed and business owners there may be few opportunities for such. Contributions can be made up until the date that the individual has to file their tax return. One hundred percent of the contributions are considered tax-deductible in the year that they are made.
Withdrawal
At the time of withdrawal taxes are paid on the money. As with many IRA accounts a SEP IRA has variable taxing based on the age that you withdraw money at. That age may be subject to change in the future. At the present the age is 59.5 years. In the event that you are younger than that age at the time that you withdraw money you may be subject to income tax and a ten percent penalty. For those that are 59.5 and older only income tax is charged. For SEP IRA “income” the individual will typically pay the standard income rate. As with all retirement accounts it is important to consider what your income tax will be at the time you withdraw money and not at the present time. This will provide you with a more accurate gauge of your future financial situation.
Details
With all IRA accounts, and especially with SEP IRA accounts, the details of the situation will determine a number of factors. Factors such as the incorporation status of the business you own will determine the amount you can contribute for instance. You will also find that the details are different if your small business has employees or if it does not.
It is possible to do a large amount of research on your own. In many cases though consulting a professional can be beneficial. If you have any questions be certain to resolve them prior to opening an account. Your future is the rest of your life. There is no reason to rush into the choices that will shape something so significant.