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SEP plans for the self employed

SEP plans for the self employed

December 06, 2023

For self-employed individuals like realtors and hairdressers, a SEP IRA can be a powerful tool to reduce taxable income for the year 2023.

Here's a breakdown of the key benefits:

Tax Savings:

    • Contributions to a SEP IRA are tax-deductible up to 25% of your net self-employment income, with a maximum contribution limit of $66,000 for 2023. This means you can significantly reduce your taxable income for the year, potentially lowering your tax bill.

    • Taxes on your contributions and investment earnings grow tax-deferred, meaning you don't pay taxes on them until you withdraw the money in retirement. This allows your money to compound and grow faster over time.

Flexibility:

    • You have until the tax filing deadline (April 15, 2024) to make contributions for the 2023 tax year. This gives you flexibility to adjust your contributions based on your income and financial situation.

    • SEP IRAs are easy to set up and administer. You can open an account through a financial advisor.

Additional Benefits:

    • Provides a secure retirement savings plan: Having a dedicated retirement savings plan helps you accumulate funds for your future.

    • Peace of mind: Knowing you are actively saving for retirement can provide peace of mind and help you focus on your business.

Here are some specific examples of how a SEP IRA can benefit self-employed individuals:

    • A realtor with a net self-employment income of $100,000 can contribute up to $25,000 to a SEP IRA, reducing their taxable income to $75,000. This could potentially save them thousands of dollars in taxes.

    • A hairstylist with a net self-employment income of $50,000 can contribute up to $12,500 to a SEP IRA, reducing their taxable income to $37,500. This could help them qualify for lower tax brackets and other tax benefits.

If you are a self-employed individual, it is important to consider a SEP IRA as a way to save for retirement and reduce your taxable income for the year.

Here are some additional resources you may find helpful: