During my working days in Corporate America, I was digging deep so as to ensure for myself with a apposite retirement plan and was considering an investment in Traditional or a Roth IRA (Investment Retirement Account). My first encounter with a new type of IRA known as SEP IRA took place when I got injured and eventually became self-employed.
Basically, this plan is available only in the USA and is valid for people who are either self- employed or hold a business venture of their own. Though it might seem to be quite similar to what IRA is, SEP IRA is certainly different. In general, the SEP IRA contributions can prove to be a costly affair for those who have employees working under them. However, this policy provides equality in terms of benefits received both by the employer as well and the employees. Strikingly odd in case of the self-employed individual, this IRA proves to be a lot more cost-effective. Let’s try finding answers to some elementary questions about SEP IRA.
IS SEP IRA for a few selected businesses?
The answer is no. This plan can be executed by business of any type on an annual basis. Be it the singular proprietor or a Non Profit Organization (NPO) for that matter. The IRA contributions that you fund employers accounts with allows you to enjoy significant tax benefits, so, it makes a lot of sense setting up such an account if you run a fairly small organization. During the filing of your taxes, your SEP IRA contribution towards your employees is also deduced. Thus providing you with a definite advantage in tax payment, if you are an employer So, an employee working under an employer is kept aside from the association with the SEP IRA contribution. So there are two different types of IRA for employers and employees. The Traditional IRA is for the employees and the SEP IRA account holds the input of the employer.
Is There A Need To Create a SEP IRA?
There is not even a single reason why one should not create a SEP IRA. This would not only ensure a secure future for you as well as the employees working under you but would also prove to be the easiest and the cheapest way to plan your retirement.
Another impressive feature of this IRA is the flexibility with which the owner can change his engagement plans after every annual report. A businessman can take a decision to involve himself in the contribution according to his current business trends. He can always add up to his account during the running financial year after analyzing his market possibilities.
Now talking from the perspective of the employee, they have this option of transferring the SEP IRA funding made by the employer in their name into their Traditional IRA. However, the beneficiary from the employee’s tax return and the contributor to the SEP IRA is the employer himself. But having said that, the law emphasizes on striking a balance between the employer’s contribution and the employee’s Traditional IRA input. After all, an employee can benefit from the SEP IRA contribution of the employer only to an extent which is restricted by the SEP IRA Rules as defined by the law.
http://www.sepirahq.com |