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.