A Simplified Employee Pension or SEP plan lets small business owners make tax-free contributions toward their employees’ retirement plan, but SEP IRA accounts can also offer significant tax savings on income.
If you’re self-employed, running a small business, or making money aside from regular income at work, a SEP IRA can help you increase your tax-deferred retirement savings. Reducing your tax bill and maxing out your contributions every year can help you build a larger nest egg by the time you retire.
Here’s how a SEP IRA can help you save on taxes and boost your retirement savings:
1. Tax-deferred retirement savings
Since a SEP IRA is funded with pre-tax dollars, investment income is tax-deferred. Interest, dividends and capital gains from funds held within the account are not included in your annual taxable income, and you only pay taxes on distributions.
With tax-protected reinvestment and compound interest, your retirement fund can grow much larger in the long run. This is especially important when you’re self-employed or don’t have an employer-sponsored pension plan at work.
2. Business expense deductions
Contributions to a SEP IRA count as business expenses, which helps to reduce net profit and taxable income for the business:
For self-employed professionals and business owners contributing to their own SEP IRA, adjusted gross income and federal income tax are lower.
For self-employed individuals or small business owners contributing to their employees’ SEP IRA, both self-employment tax and income tax are reduced.
For corporations contributing to employee SEP IRAs, income tax is lower and contributions are exempt from Medicare and Social Security taxes.
3. Setup and funding dates
Unlike a traditional IRA and other retirement plans, a SEP IRA can be adopted and funded after the close of the tax year, right up to the tax return due date and any extensions that apply.
The current year’s business expenses can be included in the previous year’s tax return if needed. This helps you decide how much to contribute based on your current financial condition, as well as spread out contributions over a longer period for more effective budgeting.
(Featured image by DepositPhotos)
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
WeAreStarting and Finnexta Obtain European Authorization to Operate as Crowdfunding Platforms
Consob and the Bank of Italy continue authorizing Italian crowdfunding platforms under new European regulations. Recently approved platforms include WeAreStarting...
Why a Financial Black Swan on the Stock Market Remains a Possibility
The stock markets are still spiking, and the way things are going continues to give some credence to a potential...
Dow Jones Daily Volatility’s 200D M/A Broke Below 0.50% this Week
Dow Jones bear markets are volatile markets, lots of days of extreme market volatility (Dow Jones 2% Days), days the...
The TopRanked.io Weekly Digest: What’s Hot in Affiliate Marketing [Buffalo Partners]
First, they came for your college campuses. Then they came for your news, your politics, and you entertainment. And now,...
Redeban Boosts its Leadership in Colombia with the Acquisition of SoyYo
The SoyYo brand will be maintained and enters Redeban's portfolio as one of its strategic units. SoyYo is a recognized...
Biotech2 weeks ago
Qube Research & Technologies Increases its Short Position in Grifols to 1.23%
Crowdfunding5 days ago
Gamefound and CMON Enter into a Partnership
Biotech1 week ago
The AECC Provides 29.4 Million in Aid for 233 Cancer Research Projects
Biotech3 days ago
Biomedical Companies in Spain Demand Tax Incentives for R&D Adapted to the Reality of the Sector