A Sep IRA stands for simplified employee pension plan which allows an employer to have a simplified way to contribute to an employee’s retirement plan. It also allows them to contribute to their own retirement savings.
Contributions are made to an IRA or Annuity IRA for each employee who participates. This is a SEP IRA.
A SEP IRA account is a Traditional IRA and has the same investment, distributions, and rollover rules as a Traditional IRA.
1. What are the best SEP IRA plans?
As SEP IRAs are considered Traditional IRAs by the IRS. And they have to be set up by your employer the clear answer is a Traditional IRA.
This also means that it will have to same rules in regards to contributions, distributions, and tax related benefits. We discussed these in an earlier post.
Also, any plan that you contribute to is a great plan. The point of all this is to show you the light and help you take action.
2. Can I open a SEP IRA?
If your w2 income comes from that employer then you will need to participate in their retirement plan. If they are small enough they may have a SEP IRA plan for you to participate in.
You also can open up your own Traditional or Roth IRAs as well.
There is a serious retirement crisis in America. Too many people have little to no savings and aren’t doing anything to help their situation.
45% of Americans have saved nothing for retirement, including 40% of Baby Boomers. 38% don’t actively save for retirement at all. 20% of Americans dip into their 401k accounts early.
The good news is that you can change your situation and that is why we are continuing our discussion of different retirement vehicles and how they can help you on your journey to save for retirement.
Next up we will look at what a Roth IRA is and how it can be of benefit to you.
What is a Roth IRA?
A Roth IRA is a special retirement account where all the taxes are paid up front and then all future withdrawals are free. This differs from the Traditional IRA which defers all the tax consequences until a later time.
There are no upfront tax deductions like there is with a Traditional IRA. The great thing about the Roth IRA is that there are no penalties for distributions from monies that are contributed.
What this means is that any monies you contribute are tax-free at any time during its time in a Roth IRA. You would be responsible for any taxes due on the earnings or dividends paid .
In other words, any money that is earned would be taxed but not the original contribution.