You may deposit up to $57,000 or 25% of compensation (2020), all of which may be deducted from your annual income.
As a self-employed individual, you can take advantage of higher contribution limits and tap into alternative asset markets.
Income taxes will only come due upon distribution (withdrawal) of cash or assets from your SEP IRA. Earnings remain tax-deferred until then.
Simplified Employee Pension (SEP) IRAs are a popular employer plan for self-employed individuals. Like Traditional IRAs, SEP IRAs allow you to deduct contributions from your income for tax purposes. Distributions are taxed as income (hopefully at a lower rate). Unlike Traditional IRAs, you're not limited to contributions of $6,000 or $7,000 per year. The SEP IRA annual limit is almost 10 times higher! As with contributions, all earnings within a SEP IRA are tax-deferred. This allows you to re-invest 100% of your IRA profits into new assets if you so choose. If you elect to make contributions to the SEP IRAs of your employees, you must contribute an equal percentage of income to each account.
You may transfer SEP IRA holdings to a Traditional IRA (or vice versa) at your leisure. Transfers will not count against the respective annual contribution limits of each account.
SEP IRAs are less expensive to establish and maintain than 401(k)s or profit sharing plans. They can be a flexible option for business owners to incentivize their staffs.
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