Debra has worked in the financial industry for over 25 years for large financial firms out of NYC. She now has created on-line courses to help everyone get the financial education they need to start investing and reach their financial goals.
Courses here – http://debraohstrom.com/courses
Youtube channel – https://www.youtube.com/@FemmeFiShow
What is a SEP IRA account Summary
Are you a small business owner looking for a powerful way to save for retirement? Look no further than the SEP IRA. In a recent video, financial industry veteran Deborah Ostrom breaks down why this often-overlooked retirement account could be your ticket to a comfortable future.
What’s a SEP IRA, anyway?
SEP stands for Simplified Employee Pension, and it’s a retirement account designed with small businesses and self-employed individuals in mind. Like other retirement accounts, it offers tax-deferred growth, allowing your investments to compound faster than in a taxable account.
The SEP IRA Advantage
Here’s where things get exciting. For 2024, you can contribute up to a whopping $69,000 per employee to a SEP IRA. That’s significantly higher than the limits for traditional IRAs or even 401(k)s. If you’re looking to supercharge your retirement savings, this is a game-changer.
But the benefits don’t stop there:
- Easy setup: Forget the headaches that come with 401(k) administration. SEP IRAs are much simpler to establish and maintain.
- Cost-effective: Lower administrative costs mean more of your money goes toward your actual retirement savings.
- Flexibility is king: Had a great year? Contribute the maximum. Tough year? You can reduce or even skip contributions entirely. This adaptability is perfect for businesses with fluctuating income.
Perfect for the Risk-Takers
If you’ve got a taste for more aggressive investments, a SEP IRA could be your best friend. The tax-deferred status makes it ideal for:
- Growth stocks
- Cryptocurrency
- Alternative investments
- Frequent trading
You won’t have to worry about capital gains taxes eating into your profits each year, allowing your investments to grow unimpeded.
A Few Things to Consider
Before you rush to open a SEP IRA, keep these points in mind:
- If you have employees, you’ll need to contribute the same percentage for them as you do for yourself. This can get pricey if you have a large team.
- Like other retirement accounts, early withdrawals (before age 59½) come with a 10% penalty on top of regular taxes.
Is a SEP IRA Right for You?
If you’re a small business owner, especially one without employees, a SEP IRA could be a fantastic way to turbocharge your retirement savings. However, as with any financial decision, it’s crucial to consult with a tax professional to ensure it aligns with your specific situation and goals.
Remember, planning for retirement isn’t just about the distant future – it’s about giving your present self peace of mind. So why not explore whether a SEP IRA could be the key to unlocking your dream retirement?
Have you considered a SEP IRA for your business? Share your thoughts or experiences in the comments below!
What is a SEP IRA account transcript
In this video I want to explain what a SEP IRA is and how it might be helpful to you depending on your situation.
For those of you who don’t know me, my name is Deborah Ostrom. I’ve worked in the financial industry for over 25 years and I’ve created this channel so everyone gets educated about investing in an easy to understand way. I also create courses and you can check out my website in the links. Don’t forget to like and subscribe to my channel.
Retirement accounts were created to help Americans invest their money for their retirement in a tax deferred way so that all of us could get the benefit of compounding our gains from our investments in a faster way than a usual taxable brokerage account.
The SEP IRA that I want to talk to you about today is one way for small businesses to create retirement accounts for their owners and the employees. It’s different than a 401k account and it’s different than a simple IRA account.
One of the great benefits of the SEP IRA is that it allows for higher contribution amounts versus a 401k account or a simple IRA account. For example, in 2024 the maximum allowed contribution is $69,000 per employee. That is a lot higher than what you’re allowed to contribute to any 401K account, individual retirement account, or simple IRA account. So keep that in mind.
Let’s go through some of the other benefits that these SEP IRAs have and also keep in mind that they can be a little bit more complicated if you do have other employees.
The big benefit of all retirement accounts is that you get this tax deferred growth of your investments, and I mentioned that before. This is especially good if you have aggressive investments in the account and you’re doing a lot of trading because now you don’t have to pay cap gains tax every time you have a transaction. And if you want to let your money compound over time that really gives you a huge benefit.
So things like crypto and aggressive growth stocks or even some type of other alternative investments can be great investments to hold within a tax deferred retirement account.
The other benefit is that they can be much more straightforward for a small business to set up and maintain compared to a 401k account. There’s a lot less paperwork involved with a SEP IRA and lower administrative costs than say something like a 401k account.
It also is very flexible which is unique to the SEP IRA. Those contributions that the company makes to the owner’s account and the employee accounts, it’s completely up to them when they make those contributions. They don’t have to do it every year. So if they have a – if this business has a great year and they want make a big contribution then that’s great, but if a year later they have a very lean year you don’t have to make any contribution at all. So that is also very unique and adds a lot of flexibility for a small business.
But as I mentioned there are some drawbacks as well with the SEP IRA. If you do have employees then you have to contribute the same percentage of income for each eligible employee as you do for the owner. So you can’t show preferential treatment. That could be a big drawback if you have employees. If you don’t have employees then no sweat.
The other issue to keep in mind is with any retirement account is that if you end up making withdrawals before the age of 59 and a half you do have an extra 10% penalty um as a as a tax penalty.
Also please note I am not a tax specialist. Do not consider this specific tax advice or specific investment advice. This is for general educational purposes only. Talk to your tax professional to make sure that you set up the right one for you.
Hope you found this helpful. Let me know what you think in the comments and I will see you in the next video.