Today’s seesaw markets can be worrisome to investors saving for retirement. Watching account values rise and fall can cause you to feel anxious about your simplified employee pension (SEP) plan. A SEP retirement account’s advantages vary depending on the setup. However, your SEP has more advantages than disadvantages, even during times of market volatility. The major con for investors is not choosing to participate in a SEP when one is offered. This article examines the benefits and drawbacks of SE♏P accounts in more detail.

Saving More

A SEP is a type of 澳洲幸运5官方开🅘奖结果体彩网:individual retirement account (IRA) that an employer or a self-employed individual can establish. A SEP IRA is designed to help a company's employees save for their retirement, or a SEP can be set up by the self-employed owner for their own benefit.

However, the 澳洲幸运5🌳官方开奖结果体彩网:contributions are not funded by the employ꧒ees, as in the case of a 401(k), but instead, a SEP IRA is funded by the employer. The contributions are made directly to the employee's IRA. A SEP is a good retirementꦓ savings vehicle. However, rules limit the amount that c🅺an be contributed. The maximum contribution limits in 2022 and 2023 are the lesser of:

1. 25% of an employee’s compensation (subject to $330,000 in 2023 and $345,000 in 2024), or
2. $66,000 in 2023 and $69,000 in 2024

Account Set Up

SEP accounts are usually set up by the self-employed or a small business. The maximum value of contributions cannot exceed the lowest of the two values. Thus, both values should be calculated to determine the limit.

If a SEP is established as an IRA, individuals can usually make individual contributions up to the 澳洲幸运5官方开奖结果体彩网:traditional IRA limit of $6,500 in 2023 ($7,000 in 2024) with an additional $1,000 contribution allowed each year for those over the age of 50.

SEP accounts are often a top choice for self-employed 澳洲幸运5官方开奖结果体彩网:sole proprietors because they allow them to make pre-tax contributions to a retirement account of potentially $66,000 in 2023 and $69,000 in 2024 while also taking a business expense deduction. Sole proprietors are subject to special calculations for the deduction. Overall, each SEP plan will have its own provisions depending on the setup and contributor(s).

Employers are required to contribute the same percentage to each employee's account, including their own as an owner. Sole proprietors may decide to choose a 澳洲幸运5官方开奖结果体彩网:solo 401(k) as an alternative to a SEP.

A solo 401(k) is similar to a SEP account, but it has its own rules and regulations. The solo 401(k) can allow for salary-deferred contributions of up to $22,500 in 2023. This amount increases to $23,000 in 2024. However, a solo 401(k) is subject to its own special maximum contribution calculations.

Tax-Free Accumulation

The tax benefits of a SEP are basically the same as those of a 401k or other pre-tax retirement savings vehicle. All earnings accumulate with no immediate income tax obligations. Savings compound at a relatively high rate, giving you mಞore money after retirement, even af🍃ter future taxes are paid on withdrawals.

SEP contributions 澳洲幸运5官方开奖结果体彩网:can also be de🦄ductible for the contributor, though deductions can vary depending on the situation.

Employee Benefit

Most small businesses offer little in the way of pen🎀sion benefits. An employer making profit-sharing contributions on behalf of its employees is providing a benefit that helps attract and retain quality employees at a lower cost than increasing salaries.

Changing Investments Without Tax Liabilities

A SEP is a vehicle you can use to manage a portfolio actively. All trades are made with no tax consequences. You can base decisions on total return and what market conditions dictate.

Many SEP providers offer a wide range of investment choices, such as 澳洲幸运5官方开奖结果体彩网:exchange traded funds (ETFs), which contain a basket of stocks to help diversify the risk associated with investing in the equity markets.

Dollar-Cost Averaging

澳洲幸运5官方开奖结果体彩网:Mutual funds, which are portfolios of securities managed by an investment manager, are common investment vehicles in SEP accounts. Savers can choose from several mutual funds and ꦆ🧸have their contributions deposited regularly.

This passive investment strategy is a major pro in the downward stage of a volatile market since 澳洲幸运5官方开奖结果体彩网:dollar-cost averaging automatically takes place. Every deposit purchases a greater number of fund shares ꦍas the market goes down and fewer shares when it is rising.

The Bottom Line

SEP accꩲounts have a great deal of variation for sole proprietors versus employer contributions for employees. Like any employer-offered retirement plan, SEP accounts can increase the pay received beyond a🍃 standard salary. In fact, they are usually set up as an additional employee benefit.

Employees can take advantage of all the pros with minimal account management. If market volatility is driving the market down, shift to conservative investments, such as bonds. If the market starts to rise, shift assets back to stocks. If you d☂on't want to be bothered, pick a no-load asset allocation mutual fund targeted to retirement goals and let professional portfolio managers make the market-timing decisions.

For sole proprietors, SEP accounts offer the same advantages as for employees. Sole proprietor SEP accounts can be a great vehicle for individual investment savings with the option for a business expense d𒊎eduction. Sole proprietor SEP coꦛntributions can be subject to their own limitations, so extra research and planning may be required.