Simplified Employee Pension (SEP) IRAs

The benefits of self-employment versus employment have been listed in several articles and financial publications. Writing off expenses, home office deductions and other tax benefits are well known at this point. The topic of retirement and investing have received a little less fanfare but are equally as
important due to the potential tax deduction possibilities. I present to you the SEP IRA!

Here are ten points about what a SEP can do and how it can help you (While SEPs are beneficial to small businesses with employees, this list is meant to address small businesses with just one employee, the owner).:

1. In 2022, a SEP IRA has a contribution limit equal to the lesser of 25% of net earnings or $61,000.
   Net earnings are your earnings from self-employment minus one half of your self-employment
   tax and the contributions to your SEP IRA.
   
2. Contributions to a SEP are tax deductible.
   
3. These accounts operate like your normal IRA, the money grows tax deferred. SEP contributions
   are not subject to federal income tax withholding, social security, Medicare, and federal
   unemployment (FUTA) taxes.
   
4. Easy to Set Up: All you need to do is find a provider, and fill out a form 5305-SEP.
   
5. No Tax Filing: There are no annual filing requirements with a SEP.
   
6. Flexible Contributions: You can contribute as little or as much as you want (up to the limit) each
   year.
   
7. If you are the type who enjoys managing their own portfolio, a SEP offers all the possibilities of a
   Traditional IRA, it can be invested in stocks, Exchange Traded Funds, options, etc. (no real estate
   or life insurance). Professional management is available If you are more comfortable having a
   professional take care of your investing.
   
8. Distribution Rules: SEP IRA’s follow the same distribution rules as Traditional IRAs to include the
   Required Minimum Distribution rules. SEP IRA funds can be rolled over to a traditional IRA.
   
9. Fees: There are typically little to no fees to set up and maintain a SEP IRA.
   
10. Extra Investing! A SEP IRA is not calculated into your total Traditional or Roth IRA Contributions.
    So, in a good year, you would be able to contribute the full amount to your personal IRA while
    also contributing the max to your SEP for additional tax deduction! Or you could do $6,000 in
    your Roth and the max to your SEP! The possibilities are endless!
    Information was obtained via irs.gov/retirement-plans/plan-sponsor/simplified-employee-
    pension-plan-sep