As an employer, small business owner or self-employed individual, there are a lot of factors that you need to work out to keep the company and/or the business growing. You have to monitor employee’s performance, keep expenses within the budget, and many more more. Another possible source of problems and worry is which type of retirement plan to choose for yourself and for those under you. Of all plans tailored for small business owners and the self-employed, a SEP IRA is probably the best retirement plan you could choose. But does is suit your needs and preferences? Here are 3 common concerns of people choosing their retirement plan:
Do you want a plan that is easy to setup?
A SEP plan is very easy to set up. As an employer, you will be responsible for setting up the SEP by filling up Form 5305-SEP. Employees on the hand are the ones who will open their individual IRA accounts that will fall under the SEP. Both parties must agree to the terms of the SEP.
Are you concerned of contribution rules?
With a SEP, contribution rules are very flexible. In this plan, only employers are allowed to contribute to their employees’ IRAs. All contributions made by the employer cannot be deducted from the employee’s salaries. While this may seem like a loss for the employer, any contribution made is 100% tax deductible.
When I am at retiring age, how will the money be distributed?
In the SEP plan, withdrawals can be done starting age 59 ½ and required distributions start at 70 ½. Any withdrawal done before age 59 ½ is subject to penalties and taxes. Since required distributions start a later time (10 years) compared to other retirement plans, your money has more time to grow until the required distributions start.
even if your moving from one company to be self employed, you can do a rollover 401k into a sep ira.
So, is a SEP IRA what’s best for your needs?
- IRA funds and mutual fund companies (2008taxes.org)