SEP stands for simplified employee pension and it’s a great option for self-employed workers and small-business owners who want an easy and inexpensive retirement plan.
For 2019, a self-employed business owner effectively can put away as much as 20% of his or her net income in a SEP IRA, not to exceed the maximum contribution limit of $56,000. That's up from $55,000 in 2018.
In comparison, a traditional IRA limits contributions to $6,000 for 2019 for those younger than 50, or $7,000 for those 50 or older thanks to a $1,000 catch-up contribution. Unlike some other retirement plans, a SEP IRA allows only the employer to contribute. And whatever percentage of compensation employers set aside in the plan for themselves is the same percentage of pay they must contribute for each eligible employee.
SEP IRAs follow many of the same rules as traditional IRAs. You generally must be at least 59 1/2 to take withdrawals from the account without paying a 10% penalty. And once you turn 701/2 you will have to start taking RMD’s.
A SEP IRA is easy to open and widely available at financial institutions that offer individual retirement accounts. In most cases, there is no set-up fee for a SEP IRA and no annual custodial or maintenance fee.
If you have questions call 320-679-5183.
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