Today we are talking about the SEP IRA, which stands for (Simplified Employee Pension).

As a reminder, and IRA stands for an Individual Retirement Account.

A SEP IRA can be used by self-employed individuals and small business owners who would like to contribute more than the Traditional and Roth IRA contribution limits of 6-7,000 a year.

The maximum contribution limits for 2020 are the lesser of 25% of income, or $57,000.  Some special rules apply to this, so you will want to check with your tax advisor to see how much you can contribute.

If you are an employer, and contribute to a SEP for yourself, you must also contribute to your employees, however, contributions are not required each year.

Contributions are tax deductible for the employer, meaning that contributions into a SEP IRA may lower your taxable income and in turn your tax bill.  SEP’s grow tax deferred, meaning that taxes are delayed until you make withdrawals. 

Contributions into a SEP must be made prior to your federal tax filing date, including any extensions.  This means that you can contribute to a SEP for 2019, up until your taxes are due.

You must take mandatory withdrawals from SEP IRA’s at age 72, or 70 ½ if you have already begun taking withdrawals, however, you can continue to contribute to a SEP IRA as long as you are self employed. 

Remember that an IRA is simply an account title.  It’s the investments you choose for your account that will determine whether the account increases or decreases in value.  Common types of investments for IRA’s include, stocks, bonds, mutual funds, and money market instruments

Like the traditional and roth IRA’s, non-qualified withdrawals prior to age 59 ½ from a SEP IRA may be taxable and penalized.  So you will want to remember that contributions into this type of retirement account should be made with the intention to remain untouched until then!

To find out if a SEP ira makes sense for you, or if you have a SEP ira that you would like me to review, please don’t hesitate to reach out!  It’s important to understand the fees you are paying, and to make sure your investments are suitable for your time horizon to retirement, and how much risk you are willing to take.   I would be glad to explain these details to you!

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you discuss your specific situation with your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.