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    How To Open A Sep IRA With Self Employment Income

    Small Business Owner Drowning Taxes? How to open a SEP IRA Financial Planner LA

    If you are self-employed, it is always Tax season.  If you don’t already have another better retirement account, a SEP IRA might be a great way to slash your tax bill. That is assuming you own a small business or are self-employed or at least have some 1099 income. This could be your last-minute get-out-of-jail-free card, coming in the form of a large contribution and big tax savings. Want to open SEP-IRA keep reading for how.

    Tax Planning is part of being a business owner. 

    By David Rae Certified Financial Planner™, Accredited Investment Fiduciary™

    The Simplified Employee Pension Plan, aka SEP IRA, is a type of retirement account for people who are self-employed or those who own their own businesses. This is more like a 401(k) than a pension. One of the best features of this small business retirement account is that it can be set up and funded between year-end and filing your taxes. Other plans like a 401(k), profit-sharing plan, or defined benefit pension plan would need to have been established before the year ended to get the maximum contributions.

    If you are self-employed, cash flow is often an issue. The SEP-IRA allows flexibility as to when you need to make your contribution. Being able to make large or small deposits over time or having the ability to make a one-time deposit when you get threatened with a huge tax bill from your accountant is one of the big benefits of a SEP IRA.

    What Is A SEP IRA?

    This is just another retirement account option that is specifically for business owners (or independent contractors, sole proprietors, or even those with a side hustle). It is similar to an IRA – you will get a tax deduction when you contribute, but you will pay taxes when you take out the money. A SEP IRA gives you the ability to potentially invest a significantly larger amount of money compared to an IRA which is capped at a contribution of $6,500 per year for 2023 and $7,000 for 2024.

    Contribution Limits for a SEP IRA

    You can sock away up to a fourth of your income up to the maximum limit. For the tax year 2023, that number was $66,000. If you are looking ahead to 2024, you can contribute another $3,000 for a grand total of $69,000 per year. All your contributions will be tax-deductible. The only drawback to these plans is they don’t come with a catch-up provision for those over 50. (A reason to look ahead at a solo 401(k) for 2024 if you are looking to put away as much money as possible).

    Also, SEP IRA contribution limits for 2024 are based on your income.  To contribute $69,000, you would need to earn at least $276,000.

     

    Top Financial Advisor Los Angeles David Rae
    Top Financial Advisor Los Angeles David Rae

    Combining A SEP IRA With A Roth Or Traditional IRA

    If your income allows you to contribute to a ROTH IRA or a Traditional IRA, you can fund these accounts in addition to a SEP IRA. This is great news for the super savers out there. Funding one of these IRAs, in addition to a SEP IRA, means your total contribution for the year would be capped at $72,500 or $73,500 (2023) if you are over 50.  This increases to $76,000 or $77,000 (over age 50) for 2024.

    More on how to pick the Best Retirement Plan for your Small Business.

    Who Is A SEP IRA Good For?

    A business owner who works as a sole proprietor on up to an LLC, Partnership, S, or C Corp can benefit from this type of retirement plan. A SEP IRA can be especially useful if you don’t have employees.  If your company has employees, you may need to contribute to them the same percentage as you give to yourself. Making contributions for your employees may not be a deal-breaker, but it can mitigate some of the tax savings.

    These plans can be a godsend for business owners who are facing a big tax bill. Remember, you can open and fund this type of account after the tax year has ended.  I often have my clients ask their tax preparers to calculate the maximum they can contribute for the previous year. Would you rather write a check to yourself or the government? That scenario is pretty much a no-brainer. Don’t you think?

    YOU CAN STILL SET UP AND CONTRIBUTE FOR 2023!!!

    A SEP IRA is really great for those looking to make a last-minute tax-deductible contribution for the past year. If you would like to contribute the maximum amount possible in 2023 (or 2024), check out the Solo 401(k) in addition to a SEP IRA. Most of you will be able to make larger tax-deductible contributions, and if you are over 50, you will be able to save an additional $7,500 per year as a catch-up benefit.  The deadline to make the business portion of the contribution is your tax filing deadline.

    How To Open SEP IRA:

    If you want to open a SEP IRA the process is really quite simple. Just reach out to a custodian (Schwab, Fidelity, Altruist or SEI Private Trust for example) and ask for an application. Fill in the application, and voila, they will open up a SEP IRA for you.  The tough part is figuring out how to invest the money.  And how much you are able to contribute.

    Talk with your Fiduciary Financial Planner to see which retirement plan is the best for your current financial goals.  Why pay more taxes than you need to?  Whether a Solo 401(K), SEP IRA, or Cash Balance Pension plan the important thing is to get started. Don’t let the How to Open a SEP IRA process keep you from achieving financial independence.

    Live for Today, Plan for a Richer Tomorrow.

    Open SEP IRA Financial Planner Los Angeles on the ABC 7 News
    Open SEP-IRA Financial Planner Los Angeles on the ABC 7 News

    DAVID RAE, CFP®, AIF® is a Los Angeles Financial Planner with DRM Wealth Management. He has been helping friends of the LGBT community reach their financial goals for over a decade. Nightline has called him a “Tax Wizard in an Expensive Suit” He is a regular contributor to the Advocate Magazine, Forbes.com,  and Huffington Post as well as the author of the Financial Planner Los Angeles Blog. Follow him on Facebook or via his website www.davidraefp.com

    Is Your Financial Advisor Giving You The Best Tax Planning Advice?

    Connect With David Rae, Financial Planner LA

    David Rae, CFP® AIF®

    President / Founder DRM Wealth Management LLC

    1(323) 905-4380

    david.rae@financialplannerla.com

    "How To Open A Sep IRA With Self Employment Income"

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