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Resources and Rules – SEP IRA Contribution

By Guest Author On June 28, 2011 Under Success Secrets

If you are self-employed, there is a retirement plan intended specifically for you! A SEP IRA allows you to put away a great deal of tax-deferred money toward your retirement. Independent contractors, sole proprietors, S and C corporations, partnerships and LLCs, as well as small businesses can all use the SEP to shelter retirement savings. The SEP IRA contribution for self-employed people is 20% of net earnings minus self-employment tax. For small companies , the SEP IRA contribution cap allows for 25% of the qualified employee’s salary per year , at a maximum of $49,000. An employee is defined as at least 21 years of age, doing work for the company for three of the past five years, and has been compensated with at least $550. For employees, the SEP IRA contribution must be uniform. So if the employer contributes 20% to one employee’s account , he/she must uniformly contribute 20% to the accounts of each qualified employee. Contributions are not locked in , so the employer may make a decision on the amount and frequency of contributions. Frequently this decision is made annually after reviewing the business’s net profits and factoring in economic circumstances that have impacted the business . Since the contribution limit is high, there is an possibility to swiftly build retirement savings in the tax-deferred SEP environment. This is an especially attractive benefit for those getting a late start ongetting ready for retirement who would favor an accelerated savings option. Employees cannot contribute to their SEP unless they are self-employed. A SEP IRA permits for deferral of asignificant portion of income into retirement investments where the money can grow tax-free. You can make the SEP IRA contribution for the previous year up until the final tax filing deadline, including extensions. The contributions must be made before filing the tax return. There is no allowance in a SEP plan for the catch-up contribution for olderworkers, but with the appealingly higher SEP IRA contribution limit it is feasible to save abig amount veryrapidly as you prepare for retirement.

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