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Take a page from your favorite team’s playbook when developing your investing strategy.
Take a page from your favorite team’s playbook when developing your investing strategy.
10/10/2024
RETIREMENT PLANNING
You don't have to own a big corporation to enjoy the same type of tax benefits that those owners experience with their company retirement plans. If you’re self-employed, you can open a Simplified Employee Pension Plan (SEP) that may allow you to contribute thousands of dollars each year to a tax-deferred account.
SEPs are similar to other employer retirement plans in that contributions you make as the business owner are considered a deductible business expense. Investments within both plans grow tax-deferred, and withdrawals in retirement are generally taxed at your ordinary income rate in the year of the withdrawal.
If you’re self-employed, here’s some info you might want to know about these popular plans:
If you take a distribution before age 59½, you would normally be subject to income taxes and a 10% early distribution penalty. The 10% penalty may not be imposed if the following conditions apply:
Although you would not pay a penalty on money withdrawn after 59½ (or if you qualify for an early distribution exception), you would owe taxes on all distribution at your ordinary income rate for the current tax year.
If you hire any employees, some other requirements would apply. For instance:
Establishing a SEP for your business starts with maintaining a plan document. The IRS provides a prototype document called the 5305-SEP, Simplified Employee Pension plan document. That is a matter that you may choose to handle through your tax advisor or on your own. (For more details, see IRS article: How do I establish a SEP?)
Once your business has established the SEP Plan, you will be able to open a SEP-IRA with a qualified financial institution to receive your contributions and provide investment choices, such as mutual funds, in which to invest your funds. If you have any employees they will also need to open a SEP IRA, and provide you where their contributions need to be sent.
A SEP plan can put you on the road to retirement with tax benefits similar to those of corporate retirement plans. You can open a SEP IRA today through Thrivent Mutual Funds and start saving for your retirement.
1 Self Employed owners who file Schedule C are limited to 20% of net earned income
2 For Schedule C filer, it would be net earned income; for Schedule C or Sub S Corporation filer, it would be W-2 income.
3 IRS.gov, Retirement Plans FAQs regarding SEP contributions
The information provided is not intended as a source for tax, legal or accounting advice. Please consult with a legal and/or tax professional for specific information regarding your individual situation.