SEP IRA Information
SEP IRA stands for Simplified Employee Pension Individual Retirement Account. A SEP IRA tends to be the best choice for individuals who either have their own business or receive freelance income.
SEP IRA Contributions
The main reason self-employed individuals prefer the SEP IRA is due to its high contribution limit. You may contribute as much as 25% percent of your annual earnings or $55,000 (as of 2013) to a SEP account. Contributions cannot exceed the lesser of these numbers. You may read more about these limits at irs.gov.
This high contribution limit is beneficial to individuals who have large fluctuation in their annual income. Because you can wait to make your contributions, you can decide when it’s time to file your taxes how much you wish to add to your SEP – which will also help determine the size of your tax bill. As your earnings grow throughout the years, you have the flexibility to maximize your savings.
What is the difference between a SEP IRA and a Traditional IRA?
The major difference between SEP and Traditional IRAs are the contribution limits. The elevated contributions are why most self-employed individuals choose SEP over Traditional. Beyond this, the rules are the same. Your money grows tax-deferred and all the same investment distribution and rollover rules apply just the same as to a Traditional IRA. For more information, visit our IRA page.
Creating a Gold SEP IRA
Because the investment limitations are the same for SEP IRAs as they are for Traditional IRAs, you may own gold in your SEP IRA. Silver, platinum, and palladium are also permitted. For business owners or self-employed individuals who desire to hold large portions of precious metals as part of their retirement, this is a solid option.
Should I get a SEP gold IRA?
A SEP gold IRA is an invaluable asset to any retirement portfolio. It is advantageous to entrepreneurs, contractors, and self-employed professionals seeking to cut their taxable income due to its high contribution limits and tax-deductible status.
Money invested in a SEP gold IRA is also a good inflation hedge because gold manages to appreciate (or hold value over time). It’s also an excellent way to broaden your investment portfolio. If the stock crashes or other market segments fluctuate, an investment in precious metals can ensure your wealth is partially protected.
Types of Gold You Can Invest in Through a SEP IRA
Your SEP IRA investments are generally limited to assets approved and available by your custodian. Technically, SEP IRAs can provide a variety of assets in a self-directed account, such as:
- Stocks and equities
- Individual ties (corporate and government)
- Mutual funds shares
- ETFs shares
- Commercial real estate and property (along with other real assets)
- Precious metals bullion
SEP IRAs offer a greater variation of assets than 401(k)s. It allows you to invest in the exact assets of a Roth or Traditional IRA, but there’s more to it as you can invest in precious metals and commodities. As a result, SEPs are one of the few retirement savings accounts that allow you to invest in real estate and other alternatives.
With a SEP account, you can indirectly invest in gold and silver through ETFs, mining stocks, etc. These options are great for IRAs, including 401(k)s and SEP IRAs.
SIMPLE IRAs vs. SEP IRAs: which one is for you?
If you own a small business as a sole proprietor, you can choose between a SIMPLE IRA and a SEP-IRA for yourself and your employees. There are many similarities between the two types of plans but also some differences.
A SIMPLE IRA allows contributions from both the employee and the small business owner or sole proprietor. A SEP-IRA, however, only allows business owners to contribute to themselves and their employees. The contribution limits for a SIMPLE IRA and a SEP-IRA are also different.
A SEP-IRA generally benefits businesses with fewer than 100 employees by allowing employers to adjust contributions based on cash flow. Any size business can use SIMPLE IRAs.
SEP IRA vs. Traditional IRAs: which one is for you?
Most employed people have a good idea of how much they will earn per year. They might get a small raise here and there, but the yearly math is generally fairly simple.
On the other hand, freelancers and small business owners frequently face far greater fluctuations in annual earnings. And this is critical when it comes to IRS rules on retirement account contributions.
SEP IRAs are ideal for those who want more control over how much and when they contribute. Let’s look at some advantages of this type of plan over a traditional IRA.
- Significantly Higher Contribution Limit – A Traditional IRA has an annual contribution limit of $6,000 ($7,000 if you are over 50). The limit on a SEP IRA is the lesser of 25% of compensation or $57,000. This higher limit can help your retirement savings grow in good years when you earn more income.
- Simple to Setup – A SEP IRA is simple to set up. While there are a few extra steps if you have a few employees, the procedure is simple (more on later).
- Worked well with other plans – SEP IRA contributions do not limit how much you can put into other plans. This isn’t always the case, particularly with 401(k)s, which can reduce the limit of one account by the amount contributed to another.
- You Hold the Keys – There is no contribution requirement for freelancers and small business owners without employees covered by their plan. The amount you contribute to a SEP IRA each year is entirely up to you.
IRS rules for SEP IRAs
Contributions are pre-tax. You can deduct the amount you contributed from your gross income with taxes. This also allows you to save more money for retirement each year.
Premature withdrawal penalties continue to apply
As with most other IRAs, except if you withdraw from your SEP for a prequalified reason, you will be subject to a tax bill and a 10% penalty.
No Roth Option
There is no Roth SEP IRA. If you prefer to pay your tax bill when you contribute rather than taking deductions, you can’t.
If you wish to add gold or other precious metals to a SEP IRA, American Bullion can help. We specialize in adding gold, silver, platinum, and palladium to your retirement account. If you have a question or would like to know more about your investment options, please call American Bullion at 1-800-326-9598 to speak with a precious metals specialist.