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Too Busy Building Your Business To Plan For Retirement? SEP IRA

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February 1, 2017
Big shirt: Retirement SEP IRA for small business owners and freelancers

If you’re a small business owner or sole proprietor, you may be one who manages it all—sales, marketing, customer service, billing, and quality control. While being the chief cook and bottle washer has its benefits, it also means lots of competing demands on your time. Planning for retirement can get lost in the shuffle.

It’s important to carve out time to plan for tomorrow, and opening a SEP IRA is a simple and easy option for the self-employed to start building a secure financial future. "Small business owners are often so busy just doing their jobs. Once a year it is important to bring thinking about retirement to the top of the list," says Matthew Sadowsky, director of retirement and annuities at TD Ameritrade.

A SEP (Simplified Employee Pension) IRA offers high annual contribution limits, and getting started requires minimal paperwork. For the time-pressed, this can be an easy option for the small business with or without employees.

"Many people don't realize the benefits of a SEP IRA. Often small business owners and sole proprietors don't have easy access to 401(k) plans, or don't want to deal with the administrative burden of a 401(k)," Sadowsky says. Making a SEP contribution can create a tax deduction as well. "By investing in your future, you are also saving on the income taxes that you are paying," Sadowsky says.

SEP IRA Key Features

Are you a sole proprietor, independent contractor, or freelancer?

  • A SEP IRA can give you the flexibility to increase or decrease contributions according to fluctuating income levels.
  • You can contribute up to 25% of your annual income, up to $53,000 for the 2016 tax year (contributions can be made until April 18, 2017 or extension date, if applicable). For the 2017 tax year it goes up to $54,000, and again, you can make contributions until the following April or applicable extension date. 
  • Your contributions are tax-deductible.
  • Just like traditional IRAs, SEP IRAs are federal tax deferred, meaning dividends and capital gains are shielded from federal taxes until funds are withdrawn.

Are you a small business owner?

  • A SEP IRA may also be a good option for those businesses with up to 100 employees.
  • You, as the employer, are not locked into making a contribution each year, and you can decide whether and how much to contribute to employees’ accounts. But, as employer, you must contribute for all eligible employees at the same percent of compensation for each.
  • SEP IRAs offer a streamlined administration plan, meaning there are no plan tax filings with the IRS.

Tick-Tock, Tick-Tock, Tick-Tock

The SEP IRA contribution deadline does give you some flexibility, but don't wait too long. A new account must be opened prior to your tax return due date, which, for individuals, is generally April 15 (April 18 this year). If you file an extension with the IRS, you may be able to open a new account as late as October 15. But for small businesses, it depends upon your fiscal year. For example, if your business' fiscal year end is Dec 31,  the tax filing deadline would be March 15, and a 6 month extension could run through September 15.

Taking the first step toward securing your future retirement isn't as hard as you may think, and the task can be easily incorporated into your day's work. Online tools such as this TD Ameritrade retirement calculator can help you determine where you are on your retirement journey, and specialists are available to help small business owners and the self-employed choose a retirement plan.

Although living in the present is important, consider carving out some time now to plan for a secure financial future. Then get back to work. Those bottles aren’t going to wash themselves.

Hands-On Retirement Planning

Is a SEP IRA right for you? Speak with a retirement consultant to get started today at 800-472-0586.

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