SEP IRA Maximum Contribution – Making It Count

Many people think of an IRA as an investment, when it actually is a savings plan. The national average of interest rates paid for IRAs is somewhat small, but remember, the interest is compounded. So by funding the maximum allowed amount and adding the accrued compounded interest, an individual can save enough to live nicely in retirement. That’s one of theattractive aspects of the SEP IRA. For the self-employed individual , the SEP IRA maximum contribution is a generous 20%, up to $44,000 yearly . The self-employed do not receivesalary, but instead have net profits from their business venture. Net profits are calculated by taking the net self-employment income and subtracting one half of the self-employment taxes. The resulting net/net self-employment income is then multiplied by 20% to come to the allowable contribution amount. SEP IRA accounta are also a solid choice for LLCs, sole proprietorships, partnerships, S and C corporations, and small companies that may not have the available resources for a more conventional retirement plan. In an employer’s plan, the SEP IRA maximum contribution can be 25% of compensation , up to $49,000 per year . The employer decides on the amount , and contributions must be consistant for all eligible employees. A 20% contribution to one employee’s SEP account means aequivalent 20% contribution will also be made to all qualified participants’ accounts . The employer is not locked in to a certain percentage or frequency for contributions, and can evaluate and change as business conditions dictate. The SEP might even be put on hold without contributions for a period of time. Often these decisions are reflections of business climate and the company’s net profit picture . Playing an active role in preparing for retirement is a responsible thing to do, and the SEP accounts offer many positive aspects to consider. They are easy to establish and administer , low-cost , and with the SEP IRA maximum contribution limits higher than most accounts , offer a unique opportunity for fast retirement savings.