Most people that work for a private company will have access to a traditional 401k plan, but what about those that choose to be self employed? They also need to make plans for their retirement. The SEP IRA rules have been simplified and designed with small business owners and the self employed in mind allowing them to save for their future and at the same time make savings on their current tax liabilities.
To be able to qualify for a SEP IRA account you must be a self employed person or a small business owner. A self employed person operating as a sole trader also qualifies to open a SEP IRA plan. Small businesses that qualify are those with an S-corporation, C-corporation classification, a partnership or an LLC. There are several institutions where you can open a SEP IRA account including banks, mutual fund companies or by using a brokerage firm. If you already have a retirement plan in place with one of these institutions or a personal account with a bank it is advisable that you contact them and find out which is the best plan to suit your individual needs.
One of the main benefits with a SEP IRA account is the generous contribution limits. For the tax year 2009-2010 the SEP IRA contribution limit was set at $49,000, this allowed the small business owner and those self employed to be able to put away a considerable amount of money for their retirement. Because any contributions made into a SEP IRA account are completely tax deductible saving in a plan such as this means that the business owner and self employed individuals can make large savings on their taxes.
SEP IRA rules for withdrawal are basically the same as those for traditional 401k plans. Once the small business owner or self employed person has reached the age of 59 and a half any money that has been accumulated in their SEP IRA account can be withdrawn with no tax penalties involved. Any money withdrawn on a yearly basis will be taxed at the prevailing rate on income and the Inland Revenue Service do not impose any tax penalties on this money.
Also as an additional plus, you can do a rollover 401k into a SEP plan if you are going from working for someone else to owning your own business.