Sep-Investment - A Retirement Plan for Self-employed Individuals

A Simplified Employee Pension (SEP) is a retirement investment plan for self individuals and employers. They can establish a SEP for all eligible employees anytime prior to their own tax-filing end date. In this plan, the employer is allowed for tax deduction. The employees who wish to set up a SEP account must establish a traditional IRA and rename it as SEP IRA in order to deposit contributions.

Investment Options

The SEP IRA is unique because of its vast investment types and the number of assets one own in the account. List of few assets one can invest with the help of SDIRA are Real estate, Precious metals, Intellectual properties, Hedge funds, Crowd funding, Mortgages, Stocks, Structured settlements and Tax Lien Certificate. Even though the investment options are large, some investments are not eligible in this plan. According to IRA publication, investment types such as collectibles, coins and life insurance are not used with this retirement account.

SEP Contributions

The SEP contributions are generally deposited in the traditional IRA account. But, some financial institutions require the traditional IRA labelled as SEP IRA in order to receive the SEP contributions. The contributions made by the employers have certain limits. It must not exceed 25 percent of employee’s compensation or 56,000 dollars of employee’s compensation. Because of the SEP IRA plan is based on traditional IRA, the same traditional IRA rules are also applicable to SEP IRA. Common rules include distribution, investment, contribution and deduction rules. Also, the SEP IRA account must meet the document requirement for both SEP IRA and Traditional IRA.

SEP Withdrawal Rules

The contributions and earnings in SEP investment can be withdrawn at any time. The withdrawal is included in the in the tax on the year received. The SEP contribution and earnings must be distributed evenly to all investors and it satisfies the IRS minimum distributions. Normally, a 10 percent tax rate applies if an investor makes a withdrawal before the age 59½. The contribution amount in SEP may be tax-free if it is combined with other retirement plans and individual retirement account.