Benefit from High SEP IRA Limits
The SEP IRA is a retirement account created to benefit small business owners and self-employed individuals . The plan is appropriate for sole proprietorships, LLCs, partnerships, and S and C corporations. In 2009 and 2010, the SEP IRA limits on contributions are topped at $49,000 yearly or 25% of the employee’s total compensation annually. Contributions to a SEP IRA are usually 100% tax deductible and the investment profits in the account grow tax deferred. Withdrawals after age 59 ½ will be taxed as ordinary income, but earlier withdrawals will trigger a 10% penalty tax as well as regular income tax. The primary appeal of the SEP account is the generous contribution cap and the great flexibility the SEP provides . Yearly contributions are discretionary. The employer can decide each year on the percentage of contribution, or decide to make no contribution at all. Sometimes this decision is reached based on the company’s net profit and the prevailing economic conditions that effect the business . SEP IRA plans can be established by a business owner with employees or by a one person business. The SEP should be set up by tax filing deadline. Self-employed individuals who have established accounts on their own behalf should be knowledgeable about SEP IRA limits on age. They may no longer contribute to their account beginning the year they turn 70 ½ years old. Because the IRS has a rule of uniform benefits for all, small company owners must contribute an equal percentage of each qualifying employee’s income to their account, so an employee who is 70 ½ or older gets the employer SEP IRA contribution. To be eligible for the plan, the employee must be at least 21 years old. Stock is not an acceptable contribution, and all contributions are made in cash. There is no allowance in a SEP plan for a catch-up contribution for employees older than 50 years old. SEP accounts are low cost to establish and manage , and with high SEP IRA limits on contributions could be an ideal plan for fast retirement savings.