The American Dream is to work hard all your life and put away for your retirement. With these uncertain times it is really important that we do so. Many small time business owners, or people working for companies that provide a retirement plan, use the 401K as their primary retirement savings plan. Employers contribute a portion of the employee contribution to the 401K plan and of course small business owners who get the 401K plan for themselves will be responsible for the full amount. The advantage to this type of retirement plan is that the savings accumulate until retirement, while taxes are deferred until retirement.
However, there are other ways of investing that will give you a good yield. If you are a small business owner, freelancer, a private contractor, or an individual who works for a company that provides the 40lK you may qualify for a SEP-IRA account.
Starting a SEP IRA retirement plan
The SEP IRA is gaining in popularity over the 401K
The SEP is much easier than the 401K to start-up, which is very important to the small businessperson, or even an employee who wishes to invest in this type of retirement plan. Once set up, it is easier to maintain each year as well.
You simply go to a brokerage firm or go directly to a mutual fund company to have them open it for you. Some companies make it so simple that you no longer have to go in person, but can open your account online. Contact The Canseco Group for more assistance on this. www.canseco.com
Most brokers charge a lot more to manage and maintain the investing portion of your 401K; than they do, to manage and maintain your SEP IRA.
For employers, the SEP IRA becomes very attractive as a tax liability, as they can deduct up to 25% of the employee’s working earnings per year to a maximum $49,000 per employee.
A 401K allows an individual to save up to $16,000 annually; whereas the SEP IRA can offer a lot more. Keep in mind that there are no set amounts on retirement savings plans and no way of knowing in advance how much savings these plans will yield.
Taxpayer requirements for reporting your SEP IRA contributions
Make sure you keep the receipt of your contributions as you will need them when you file your taxes.
If you are an employee you will need to make sure you get a 1099 form and your W-2 form from your employer.
If you are a small business owner or private contractor make sure you visit the Small Business and Self-Employed Tax Center at the IRS website. Tax laws and provisions are always changing so it is important to make sure that you are up to-date.
If you are not using an accountant and doing your own taxes, it is important to purchase a good tax software program. Even though you will be using this program, make sure you double-check your entries just so you have not forgotten any deductions or made other errors that will seriously affect your taxes or tax reporting.
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