SEP IRA Maximum Contribution – A Major Benefit

The Simplified Employee Pension Plan, known as a SEP, wascreated to help self-employed workers and smaller businesses that may not have the resources for a more typical retirement plan.  Among the most desirable features of the SEP is the simplicity of establishing and managing the account, and the very high SEP IRA maximum contribution limit. In an employee plan, the employer sets the contribution level, often basing it on the company’s net profit and present-day economic conditions that influence the business . Contributions must be consistant for all eligible employees. The SEP IRA maximum contribution is $49,000 annually , or 25% of compensation, whichever is less . An employee will be eligible for the account if at least 21 years old, having worked for the business for three of the last five years and having been paid at least $550 for that work. SEP accounts are ideal for small companies , and for LLCs, partnerships, sole proprietorships, and S and C corporations. The SEP IRA maximum contribution for self-employed people is calculatedin a different way, since the self-employed do not receive wages. It will be based on net profits from the business enterprise. The self-employed are allowed to contribute up to 20% of net profits, up to $44,000. The calculation is net self-employed income minus one half of self-employment taxes to come to the net self-employment income, multiplied by 20% to determine the allowable contribution amount. Thisgreater SEP IRA maximum contribution allows the self-employed to save a lot of money , andswiftly. If the self-employed also have a full-time job, there’s even greater opportunity to save the maximum amount every year, and withcareful investment decisions accumulate a significant amount to be available at retirement. SEP plans are simple straightforward to establish and require very minimum documentation . Administration is equally easy and low cost . With the advantageous   SEP IRA maximum contribution cap , it’s worth checking out the possibilities.