SEP IRA

If the regular employees in the population have their own retirement plans, then business owners have their own as well. The individual retirement account for the small business owner is called in the market as the SEP IRA. It stands for Simplified Employee Pension plan, and yes this is one easy plan that can be chosen by the enterprising individual. Just like any other types of individual retirement account, this option that you can take has contribution limits as well.

The latest release of the limits for 2008 has a contribution limit of $46,000. The typical investments that can be placed on this account are usually 100 percent tax deductible and any investment earnings in this account will grow with its tax deferred. And the taxes that you will incur the moment you withdraw from the account will vary and that will depend on your age. For example if you decide to withdraw from the account after the age of 59 years and 6 months then the distribution or the withdrawal will be taxed just like an ordinary income. But if you withdraw at an early age, then you will be slapped with a 10 percent penalty plus the usual income taxes. Though the amount of penalty can be considered as a drawback for the SEP IRA, still this type of retirement account looks good in the eyes of investors.

Here are a few more reasons why this retirement account is good and highly beneficial. With this type of retirement plan, you will not be faced with tough set-up guidelines. The retirement account can easily be initiated and what needs to be done is to complete the form 5305-SEP. another good benefit is the fact that the contributions or the investments that you make are not deductible as a business expense for the employers. Also as mentioned, employees get to enjoy tax-deferred earnings. With this plan, the employer contributions will go directly to the traditional type of IRA under the name of the employer. This means that the responsibilities to oversee the contributions are off the shoulders of the employer.

And finally, with the SEP IRA, there are a wide array of choice investments and some of the possible investments include stocks, bonds and mutual fund. This type of retirement account is also open for employees as long as he or she is at least 21 years of age and has worked for the company for in three of the five years. The employee should have received at least $500 in compensation for the previous year. This IRA is the best match for your needs if you are alone and you intend to remain that way. This can give you the opportunity to invest in a bank, in a mutual fund or in a brokerage firm and this retirement account will allow you to pay no or at least very low annual account fees. The choice of this plan is eventually yours and if flexibility is an issue for you, then this IRA is the better choice.