While being self-employed comes with some inherent perks, one of the potential drawbacks of self-employed life is not having an employer-sponsored retirement fund (such as a 401K). Still, there are plenty of viable retirement plan options available to those who work for themselves. One popular option is that of the Simplified Employee Pension Individual Retirement Account, also known as an SEP-IRA.

What is an SEP-IRA Plan?

SEP-IRAs are retirement accounts specifically designed with self-employed workers and small business owners in mind. This account is similar to a traditional IRA in the sense that any contributions you make are tax-deductible. Meanwhile, your investment grows tax-deferred until you draw on it upon retirement.

Unlike a traditional IRA, however, an SEP-IRA tends to be easier to set up. This type of account also makes it possible for small business owners to offer retirement accounts to their employees and enjoy tax breaks for any contributions they make.

Pros and Cons of SEP-IRAs for the Self-Employed

There are many advantages to setting up an SEP-IRA when you’re self-employed. For starters, creating one of these accounts is quick and simple. There are many online investing platforms that allow self-employed workers to launch an SEP-IRA in a matter of minutes and with little to no investment minimum.

From there, an SEP-IRA also gives you the freedom to contribute as you’re able (up to the annual contribution limit). This is often ideal for self-employed workers who may have fluctuating income and thus cannot commit to contributing to a specific amount of money to a retirement fund each month.

One potential drawback of the SEP-IRA to be aware of, however, is that this type of account does not allow you to borrow against your funds. This is a feature that is offered by some other retirement plans, so it’s a shortcoming to be aware of with an SEP-IRA. Likewise, if you end up hiring any employees to help you run your business, you will be required to offer them an SEP-IRA account after they have been working for your company for three out of the past five years.

Looking For More Help With Your Financial Planning?

The SEP-IRA is one of several retirement plan options that are available to self-employed individuals and small business owners. With plenty of tax benefits and flexible contributions, an SEP-IRA is a popular choice and one that you can have set up rather quickly.

Still not sure which retirement plan option is right for you as a self-employed worker? It may be time to consult with a financial advisor. Our team at Counting House Associates offers the business consulting and other financial services you need to make the right decisions. We also offer additional services to make your life easier than include bookkeeping, accounting, tax preparation, payroll, and more! Contact our team today to find out more about our services or to schedule your free consultation. You can also reach us by calling our office directly at (603) 766-1099.

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