If you own a small business or self-employed, you must be aware of your options for your retirement. Aside from Roth IRA and Traditional IRA, you have three other options. These are the SEP IRA of the Simplified Employee Retirement Plan, SIMPLE IRA or the Savings Incentive Matching Plan for Employers and Group IRA. These three types of IRAs are exclusive for employers who owns a small business with employers ranging from 1- 100.
Among these three types of IRA accounts, SEP IRA accounts provides a lot of benefits to employers. Aside from attracting new talents and retaining old ones by offering this type of IRA account, there are a lot more benefits offered by SEP IRA accounts. This IRA accounts allow employers to contribute directly to the IRA accounts of their employees including the employer’s IRA account as well.
If you are planning to open a SEP IRA, you must first be aware of the IRA contribution rules. The IRA contribution rules for SEP IRA is simple. Before the employer can open a SEP IRA account, he or she must have a traditional IRA account and the employees as well. Most often than not these traditional IRA accounts will be required to be labeled as SEP to distinguish it apart from traditional IRAs. However, not all requires labeling.
Only the employer can contribute to the SEP IRA account. And by that these means that employees cannot contribute to their own IRA accounts. The amount of contribution given to SEP IRA accounts depends on the employers discretion. This feature of SEP IRA accounts provides employers more flexibility on the finances of the business. The employer can adjust the contributions depending on how well the business is doing.
Lastly, because SEP IRA accounts are originally traditional IRAs, all contributions that goes in to the account and all assets that the account handles will be regarded just like those of the traditional IRA account. SEP IRA accounts also follows the traditional IRA rules for distributions and withdrawals. To help you have a better understanding of SEP IRA accounts, you should be aware of these basic IRA rules.