The SEP IRA is an individual retirement account for the self-employed. If you own a small business or have a side job earning passive income, you can qualify for a SEP IRA. You may think that SEP stands for self-employed, but it actually stands for Simplified Employee Pension.
As an alternative to 401k’s, SEP IRA’s give small business owners the ability to contribute money for their employees. A SEP IRA can be ideal for a small business with 10 employees or less. If you have a SEP IRA, you can still open and contribute to a Traditional and Roth IRA. As a self-employed individual, a SEP IRA allows you to put more money in retirement. To learn more about 401k’s, Traditional IRA’s, and Roth IRA’s, read my post comparing the three retirement accounts.
Benefits of a SEP IRA
- As of 2021, the contribution limit of 25% of your income up to $58,000 per year is much higher than the annual contribution limit of a 401k ($19,500) or a Traditional and Roth IRA ($6,000-$7,000).
- For small business owners, it can be used as a low cost alternative to the employer sponsored 401k plan.
- The money you contribute to a SEP IRA is tax deductible for you or your business. This includes money you put away for your employees.
- SEP IRA’s are flexible, allowing you to change your contributions and set your own guidelines for your employee’s qualifications.
- As a small business owner, you can earn tax credits for offering your employees a SEP IRA.
- It helps you and your employees plan for retirement.
If you are a small business owner or earn money with a side hustle like Door Dash, Uber, Lyft, Etsy, or Fiver, consider opening a SEP IRA and minimize the taxes on your earnings with contributions to your SEP IRA. Just remember that you cannot contribute more than 25% of your annual income. If you earn $20,000 in your side job driving for Door Dash, you can only contribute 25% of $20,000, or $5000.
If you are interested in opening a SEP IRA, Roth IRA, or Traditional IRA, you can do so through my referral links below or you can research and join other brokerages that offer SEP IRA’s.
- Betterment: Join here to get $5000 managed free for a year.
- Wealthfront: Join here to get $5000 managed free for a year.
- M1 Finance: Join here to get up to $50 when you deposit $100 within 30 days.
Affiliate Link Notice: This post contains affiliate links, which means I may earn a small commission at no additional cost to you if you decide to purchase or sign up for a product through my referrals. While you can sign up through any other means, it would help support the blog if you sign up through my links. Thanks.
