Are you Self-Employed? If so you may find the Simplified Employee Pension (SEP) to be helpful when it comes to tax savings and planning for your retirement. Whereas retirement plans all have similar rules, not all retirement plans are alike. Below you will learn what is different about the SEP and then you can decide if this plan is right for you.
The SEP IRA allows the business to contribute the lesser of 25% of business income or (for 2020 $57,000 and for 2021 it is $58,000). This employer contribution is a pre-tax contribution. You can still open a SEP account and make a 2020 contribution until May 17th, 2021.
You can have full-time employees and use a SEP IRA. You must make IRA contributions for the employee.
TAKING A PERSONAL LOAN:
The SEP IRA does not allow you to take a personal loan. No IRA allows this.
You can make a loan to other people or businesses from the SEP if the borrower is not a disallowed party. Here is information regarding prohibited parties.
UNRELATED BUSINESS INCOME TAX (UBIT) and UNRELATED DEBT FINANCED INCOME TAX (UDFI):
UBIT is a tax when a retirement plan invests into a business.
UDFI is applicable when an IRA is using financing to buy real estate.
You can read about both these taxes HERE. Best to consult your tax advisor or uDirect when you have specific UBIT/UDFI questions.
COSTS AND RESPONSIBILITIES OF SEP IRA:
The SEP IRA has a $50 set-up fee plus the first year’s annual fee of $275 to set up the SEP. Once the plan is established, you do not have any annual IRS reporting requirements. The tax reporting and record-keeping are included and are handled by the custodian. To set up your SEP IRA click HERE.
Always consult a tax professional when deciding between retirement plans or any decision regarding any retirement plan. Feel free to contact us if you have questions about this or any IRA-related topic. We can be reached at 866-447-6598 or info@uDirectIRA.com.