Should your business implement a retirement plan?

Part 2 SEP IRAs

In the last article we discussed in broad terms the three most common retirement plans for small to medium-sized businesses; SEP IRAs, SIMPLE IRAs, and 401(k) plans.  In this article we will focus on SEP IRAs and their benefits for employers and employees.

What is a SEP IRA?

A SEP IRA (Simplified Employee Pension Individual Retirement Account) is a retirement plan designed for self-employed individuals and small business owners, allowing them to save for retirement for themselves and their employees, if they have any. It's easy to set up, operate, and has some unique advantages that make it an attractive option.

Benefits for Employers:

• Simplicity and Flexibility: One of the most significant benefits of a SEP IRA for  employers is its simplicity. Setting up and maintaining a SEP IRA is straightforward, with minimal administrative hassle. You can choose to contribute to the plan based on your business's financial situation each year.  In other words, there is no requirement to contribute annually.  You can do so only if your situation allows.  However, if you contribute to one employee, you must contribute to all eligible employees.
• Tax Advantages: Contributions made by employers to their employees' SEP IRAs are tax-deductible. This means you can reduce your business's taxable income, potentially lowering your tax bill while helping your employees save for their retirement.  If you’re self-employed with no employees, you can still contribute to your own SEP IRA and receive a tax deduction.
• Generous Contribution Limits: Employers can contribute up to 25% of an employee's annual compensation or the annual limit, whichever is less.  For 2023, the annual limit is $66,000 and usually increases each year.

Benefits for Employees:

• Easy Participation: As an employee, participating in a SEP IRA is effortless. Your employer handles the setup and contributions.
• Tax-Deferred Growth: Just like a traditional IRA, the funds in your SEP IRA grow tax-deferred. This means you won't pay taxes on your contributions or earnings until you withdraw the money in retirement.
• Portability: If you change jobs, you can take your SEP IRA with you. This ensures that your retirement savings stay with you, giving you more control over your financial future.
• No Age Limit: Unlike some retirement plans, there's no age limit for contributing to a SEP IRA. You can continue to save for your retirement as long as you're working for an employer who offers this plan.

SEP IRAs are a fantastic retirement savings option for both employers and employees. They offer simplicity, flexibility, and valuable tax advantages for employers, while providing employees with an easy way to save for retirement.
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This retirement vehicle may or may not be the best option in your unique situation and we highly recommend consulting a tax/financial advisor before beginning any type of retirement plan

Disclosure:  Tax law is constantly changing due to new legislation, cases, regulations, and IRS rulings. Our Firm closely monitors these changes. Please call us before implementing any information discussed in this article, or if you need additional information concerning any item mentioned above. We will gladly assist you.