The SEP individual retirement account is a kind of retirement vehicle allowed by the government that allows wage earning folks to save cash away for when they retire when they turn 59 and a half.
Why is this account so special? Because not everyone is allowed to invest in it. Not everyone has the ability or is allowed to establish this account. Why? As a normal working individual who works for a wage, in other words works for an employer, they are allowed to stash money away in a traditional IRA account, or a 401k account through work.
Those who are Self employed on the other hand are allowed to start a SEP IRA account, and they can use this account to save money for retirement. These funds grow free of tax and are there for withdrawal once the person reaches their retirement age.
Why is this account so good? When you are saving in a traditional 401k plan or a regular IRA, you are allowed to invest a fixed amount per year with no regard for how much you make annually, therefore there is no benefit added for people who earn more money, at least from an investment perspective.
In a SEP, you can invest more when you make more, all the way up to 20% of $250,000 of your earnings. This is for owners of a small business. As an employee however you are allowed a 25% saving.
Why are employers penalized by a small allowance to invest? Because they also have to pay self employment taxes, on their behalf and the employee's behalf. The employee only pays one half of this.
If you are a worker for a wage, you may want to think about a side gig so you can establish this kind of a retirement account. By investing a bigger amount each year, you will benefit more from the long term compounding effect over time. Start thinking about how to make the most of your retirement if you have not yet. The SEP can be a good mechanism to get this done.
Why is this account so special? Because not everyone is allowed to invest in it. Not everyone has the ability or is allowed to establish this account. Why? As a normal working individual who works for a wage, in other words works for an employer, they are allowed to stash money away in a traditional IRA account, or a 401k account through work.
Those who are Self employed on the other hand are allowed to start a SEP IRA account, and they can use this account to save money for retirement. These funds grow free of tax and are there for withdrawal once the person reaches their retirement age.
Why is this account so good? When you are saving in a traditional 401k plan or a regular IRA, you are allowed to invest a fixed amount per year with no regard for how much you make annually, therefore there is no benefit added for people who earn more money, at least from an investment perspective.
In a SEP, you can invest more when you make more, all the way up to 20% of $250,000 of your earnings. This is for owners of a small business. As an employee however you are allowed a 25% saving.
Why are employers penalized by a small allowance to invest? Because they also have to pay self employment taxes, on their behalf and the employee's behalf. The employee only pays one half of this.
If you are a worker for a wage, you may want to think about a side gig so you can establish this kind of a retirement account. By investing a bigger amount each year, you will benefit more from the long term compounding effect over time. Start thinking about how to make the most of your retirement if you have not yet. The SEP can be a good mechanism to get this done.
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