Retirement Planning Dreams

The SEP IRA (or Simplified Employee Pension Individual Retirement Account) is a nice option for employers and self-employed individuals to put funds toward retirement, whether for their employees or themselves. The benefits of SEP IRAs make them quite enticing to the self-employed, not to mention convenient. A few benefits of starting a SEP IRA are: flexible contributions, tax-deductible contributions, generous contribution limits, tax-deferred interest, easy to set up and maintain, easy retirement plan rollover and consolidation, and low cost.

Any employer is eligible to establish SEP IRAS for their employees. Self-employed contributors also working for an employer can have their own SEP IRA for their self employment income while also participating in the employer offered retirement plan for their full-time job.

How to Start SEP IRA Accounts
You should talk to your accountant and/or financial advisor for specific details around starting SEP IRA accounts. According to the IRS, opening a SEP IRA account requires three components: execution of a formal written agreement, providing eligible employees with required information about the SEP IRA accounts, and finally, ensuring that all eligible employees have SEP IRA accounts available to them.

The IRS also states that the employees themselves own and control the SEP IRA accounts while the employer simply makes the SEP IRA contributions. For more information about setting up a SEP IRA, contact your accountant, financial advisor, or visit the IRS Web site.

SEP IRA Deadline
The SEP IRA deadline is the due date of the business’ income tax return due date, including any extensions due to holidays or weekends. This means employers and self-employed persons can set up SEP IRA accounts (for the previous year) as late as April 15 in many cases.

If you are reading this article before April 15, you most likely still have time to consider opening a SEP IRA account. Speak with your accountant or trusted financial planning professional for advice.

SEP IRA Contribution Limits
If you are wondering about the contribution limits for SEP IRA accounts, you’ll be happy to find that you can contribute the lesser amount of either 25% of the employee’s compensation (including bonuses and overtime) or $49,000 for 2009 / 2010. Future years’ SEP IRA contribution limits may change due to cost of living increases or other factors.

The self-employed contributor faces the same SEP IRA contribution limits as employees under their employer. The SEP IRA rules may differ for self-employed contributors, however.

Filed under: Plans on April 4th, 2010