Types of Plans

SEP-IRAs: Retirement Saving for Self-Employed Individuals

You’ve heard about Individual Retirement
Arrangements (IRAs) as a good way to save
when you don’t have access to a 401(k)-type
plan. But if you’re self-employed, there’s an
even better option — a simplified employee
pension, or SEP-IRA.
A SEP-IRA has much higher contribution
limits than regular IRAs. Plus, they are
easy to set up. Any size business can open
a SEP-IRA. Only the employer can make
contributions on behalf of employees. So,
if you’re self-employed and you’re the only
employee of your business, you’ll make
contributions to the plan on your own
behalf…

You’ve heard about Individual Retirement
Arrangements (IRAs) as a good way to save
when you don’t have access to a 401(k)-type
plan. But if you’re self-employed, there’s an
even better option — a simplified employee
pension, or SEP-IRA.
A SEP-IRA has much higher contribution
limits than regular IRAs. Plus, they are
easy to set up. Any size business can open
a SEP-IRA. Only the employer can make
contributions on behalf of employees. So,
if you’re self-employed and you’re the only
employee of your business, you’ll make
contributions to the plan on your own
behalf.

Here’s what you need to know about
SEP-IRAs.
SEP-IRA Basics
Here are the basics of SEP-IRAs for the selfemployed:
» You can open one with your bank or
other financial institution. The person
you work with will help you fill out a form
for an IRS-approved “prototype SEP plan”
or will help you complete IRS Form 5305-
SEP. You don’t have to file the form with
the IRS. It simply documents that you
established the plan.
» SEP-IRAs follow Traditional IRA rules on
how they are taxed. Your contributions
are tax-deferred until you withdraw them in retirement.

» You can contribute up to 25 percent of
your net earnings or $53,000 for tax year
2015, whichever is less.
» You can choose among investment
options. Typically, banks offer certificates
of deposit (CDs) or money market funds.
Other institutions, such as brokerages,
life insurance companies and credit
unions, offer stocks, bonds, mutual funds
and other options.
» You can roll your SEP-IRA into another
SEP-IRA or Traditional IRA. If you take a
job that includes a 401(k)-type plan, you
can roll your SEP-IRA into the plan, as
long as it accepts rollovers.
» If you hold on to your business and take a
second job that offers a 401(k)-type plan,
you can participate in both.
» You can’t take a loan from your SEPIRA.
If you need access to the money
before you reach age 59½, you can take
a withdrawal, but you’ll typically pay
ordinary income tax and a 10 percent
penalty.
» You can avoid the 10 percent penalty on
your early withdrawal if it’s for certain
reasons. These include:
» College expenses

» First-time home purchase (up to
$10,000)
»Certain medical expenses
» Total and permanent disability
» If you’re a reservist called to active duty
» You inherit an IRA
» You are receiving distribution in the
form of an annuity
» You’ll need to start taking distributions
when you reach age 70½. The financial
institution that holds your account
will notify you when you need to start
making withdrawals.
Take Action!
Q Make a plan for your retirement. Be
specific and set realistic goals to help
make retirement attainable.

Q If you’re self-employed, consider a SEPIRA
for your retirement savings, rather
than a Traditional or Roth IRA. You’ll
benefit from higher contribution limits.
Q You can open one through a bank or
other financial institution.
Q Understand the investment options
available and decide if they are right for
you before opening your account.
Q Since SEP-IRAs follow the rules for
Traditional IRAs, see our related article on IRAs.
Q Learn more about SEP-IRAs by reading

“SEP Plan FAQs” on the IRS website.

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