Each individual while planning their retirement should consider the SEP IRA retirement fund. The SEP IRA stands for Simplified Employee Pension Individual Retirement Account. This type of retirement plan is designed by the government for an easy retirement. The small businesses are not capable of matching the contributions of their employees by as much as 25%. Self-employed do not have a greater advantage and cannot contribute a high amount as it is based on the net profit of the business.
Simpler rules for SEP IRA
The rules that govern the SEP IRA retirement fund are less stringent. The small business owners can ascertain simple requirements of the standard Internal Revenue Service (IRS) regulations. According to the eligibility criteria by IRS, for contributing to a SEP IRA an employee must be minimum 21 years of age and must have worked for the same employer for at least 3 of the last 5 years. The employee must have earned at least $450 in wages. Once an employee reaches the age of 70 years, they can begin to withdraw half of the amount from the IRA retirement fund.
Flexibility for employer’s contributions
Distinct from other IRAs, there is no set obligations for SEP IRA contributions. The employer can change the frequency and amount of the contributions made to the plan based on the net profit of the business. This makes the SEP IRA retirement fund a better choice for self-employed and small businesses. During the business start-up period, the employer can set up an IRA retirement fund with a small amount. When the business’ profit increases, they can increase their contributions. If the business hits its hard times, the employer cannot reduce the number of contributions for a year or two, till the business gets better.