Retirement Planning for the Self-Employed
January 23, 2017
Investopedia recently covered an article on retirement savings options for self-employed workers, including the solo 401(k), SEP IRA and SIMPLE IRA. President of Pure Financial Advisors, Joe Anderson contributed to the section on the SEP IRA (Simplified Employee Pension), which you can open at just about any bank or brokerage firm. While it’s suitable for both individual entrepreneurs and businesses with employees, you can contribute up to 25% of each employee’s income, to a maximum of $54,000 for 2017. Anderson comments:
“You can contribute more to a SEP IRA than a solo 401(k), excluding the profit sharing, but you must make enough money since it’s based on the percentage of profits.”
In a SEP IRA, the employer contributes to the fund, not the employees. So although you do not have to contribute to the plan each year, when you do contribute, you will need to contribute for all of your eligible employees. This makes the plan most desirable for one-person businesses. Remember that you will be hit with a 10% fine, along with taxes, if you withdraw money from your SEP IRA before you are 59½ years old.