Understanding The SEP IRA

A SEP IRA stands for Simplified Employee Pension Individual Retirement Account. It is a great way for business owners to give retirement options to their employees.  This is particularly popular with self employed business owners.

The reason this is so popular is due to the fact that even if you do not have any other employees working for your company you can set up a retirement plan for yourself.  This ensures that the owners retirement goals are also met.

With a SEP come a few SEP IRA rules that employers must meet should they decide to offer this type or retirement plan. For instance, an employer who offers a SEP IRA has to allow any employee that meets the criteria to participate in the SEP plan.

Some of those requirements are, an employee who has earned at least $550 during the year, has been employed with the business for any length of time 3 out of the past 5 years and is also 21 years of age or older. The owners can also allow other employees who do not meet these requirements to participate but it is not a requirement.

As with just about any retirement plan you are going to have contribution limits and the SEP IRA is no different. Here are some of those limits:

* For employees other than the owner, you can contribute 25% of your wages for the year or $49,000 which ever of these 2 amounts is lower.
* If the employer offers other contribution plans then your total amount contributed to all of these accounts cannot exceed those limits.
* If you are self-employed then you can only contribute 20% of your net income, and that is after you subtract half for the self employment tax as well as 20% of your net income after expenses.

As with any retirement plan offered by an employer, you should invest and if you don’t feel comfortable with their options, find something else.

The idea is to invest in your retirement as soon as possible and you want to make sure you rollover your money as you change companies or careers. Be sure to ask your employer about the SEP IRA if they have one.

Visit Annuities and Structured Settlements for more investment information.

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