The limits of a SEP IRA are much higher than those of a traditional or Roth IRA. Contributions can be as much as 25 percent of an employee’s annual salary or $58,000, whichever is lower. Unlike a 401(k) plan though, those contributions aren’t left to the mercy of the company’s fund manager. The employee can still have a say in how the SEP IRA invests their retirement funds.
The aim of a SEP IRA is to help small businesses offer their employees retirement plans without the complexity and expense of creating a 401(k). But the fact that they’re also available to sole proprietorships can make them useful for freelancers and other small business owners with just one or two employees. Someone who runs their own business themselves can set up a SEP IRA, contribute up to $58,000 in pre-tax funds and still maintain control over their retirement fund. It’s one way around the problem of not having an employer who can pay into the company’s 401(k) plan.
Which IRA you choose—if you choose an IRA at all—will depend on your income level, your employment status, and your tax liability.
And IRAs and 401(k) plans aren’t the only way to save for retirement. You can also consider an annuity.
- The Four Stages of Retirement
- When Can You Retire?
- How Much Will You Need to Save Before You Can Retire?
- How to Create a Retirement Savings Habit
- The Benefits and Costs of a Pension
- Retiring with a 401(k)
- The Benefits of a 401(k) Plan
- The Costs of a 401(k) Plan
- Vesting a 401(k) Plan
- 4 Types of 401(k)
- Rolling Over Your 401k
- Leave Your Old 401(k) with Your Old Employer
- How to Rollover Your 401(k)
- Individual Retirement Accounts—IRAs
- How an IRA Works
- Working Your IRA With Your 401(k)
- 3 Types of IRAs
- SEP IRA Limits
- The Benefits of an Annuity
- Deferred Annuities
- Immediate Payment Annuities
- Fixed Index Annuities and Variable Rate Annuities
- Qualified and Non-Qualified Annuities
- Changing Your Annuity—The Section 1035 Exchange
- The Limits of a 1035 Exchange
- How to Plan for Your Retirement
- How to Start Planning Your Retirement