Small Business Owners can Save for Retirement With a SEP IRA
Small Business Owners have many retirement aspirations, however obviously don't have access to a 401k like many employees of large corporations do. In order to give a 401k-like vehicle to these businesspeople, the government created a SEP-IRA plan.
A Simplified Employee Pension Plan, commonly known as a SEP-IRA, is a retirement plan specifically designed for self-employed people and small-business owners. Its key features are highlighted below. When establishing a SEP-IRA plan for your business, you and any eligible employees establish your own separate SEP-IRA; employer contributions are then made into each eligible employee’s SEP-IRA.
Plan eligibility
You can establish a SEP-IRA if you:
Are a sole proprietor, in a partnership, or a business owner (of either an unincorporated or incorporated business, including Subchapter S corporations);
Earn any self-employed income by providing a service, either full-time or part-time, even if you are already covered by a retirement plan at your full-time job.
Tax advantages
Tax-deductible contributions
Up to 25% of compensation, as much as $46,000 for the 2008 plan year and $49,000 for the 2009 plan year.1
Tax-deferred growth potential
Any investment earnings grow tax-deferred until withdrawn.
SEP-IRA deadline
The deadline to open and contribute to a SEP-IRA is:
Your tax filing deadline (including any extensions).
For most self-employed individuals and small-business owners, that deadline is usually April 15.
Contribution flexibility
No annual contribution required
Contribution percentage can vary each year, from 0% - 25% of compensation, up to $46,000 per participant for the 2008 plan year and $49,000 for the 2009 plan year.1
All SEP-IRA contributions must be made by the employer, and the same percentage of compensation must be contributed for each eligible employee (based on W-2 wages) including the employer.
Other key advantages
Plan simplicity
No complicated forms to fill out.
No annual reports for you to file with the IRS.
Attractive benefit for employees
Offering a retirement plan can make it easier to attract and retain valuable employees.
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