SEP IRA
SEP IRA comes from Simplified Employee Pension Individual Retirement Arrangement, and it has lots of features that are similar to a traditional IRA, but with extra perks.
This type of plan has a tax-deferred way to save – with a $58,000 maximum annual contribution limit in 2022.
And if you had this in mind, don’t worry, using a SEP IRA won’t hold you from using a traditional or Roth IRA (which you should consider). A SEP IRA will allow you to make employer contributions to employees, including the self-employed individual. The business will have the option to contribute the lesser of 25 % of its profits or the annual maximum. It has a wide available plan, with many brokers that offer access. Even so, you must know that there’s no Roth option and all employees will have to receive the same percentage of contributions.
This retirement plan is best for those who are self-employed and earn a lot of money, especially those in one-person outfits.
SIMPLE IRA
The SIMPLE IRA is an easy option for small employers and the self-employed if you want to offer employees a retirement plan. Even more, the SIMPLE IRA is easier for an employer to set up than many 401(k) plans, as they have more complex rules. This plan basically uses the same rules as a traditional IRA, so it’s tax-deferred and has the same withdrawal requirements at the age of retirement. Employees can have their wages deducted from their paychecks, with the possibility to defer up to $13,500 annually. Those who are over the age of 50 are allowed a $3,000 catch-up contribution.
Employers have to add to the account with some choices:
- They can match contributions up to 3% of the salary
- They can contribute up to 2% of a worker’s salary, but within the limits of annual compensation: $290,000 in 2022.
Employees are fully assured as soon as they receive the money, so any contribution will become theirs instantly.
This retirement plan is best for businesses that have at least a few employees and may allow companies to come with lower benefits than other plans.
