It’s Not Too Late to Fund Your 2013 SEP IRA
- Monday, 07 July 2014 20:56
- Aronson LLC
- 583 Views
If you are self-employed or have freelance income (e.g., consulting fees) and your federal tax return is currently on extension, there is still time to contribute to a Simplified Employee Pension (SEP). In fact, you have until October 15, 2014 to set up and fund a plan for tax year 2013.
A recent survey showed that seven out of ten self-employed individuals are not saving regularly or at all for their retirement. If you fall in that category this may be the opportune time for you to reconsider your saving strategies and take a proactive approach towards your retirement goals.
A SEP IRA has a broad appeal among self-employed taxpayers for its numerous benefits:
- High Annual Contribution Limits – you can contribute up to 20% of you net self-employment income for a maximum deferred savings of $51,000 for 2013 ($52,000 for 2014).
- Flexible Funding – there are no required minimum contributions; you decide each year how much to contribute or whether to contribute at all.
- Tax Deferred Growth – similar to a traditional IRA, your contributions and the investment earnings such as interest, dividends, and capital gains will accumulate tax deferred and will not be taxable until withdrawn.
- Ease of set-up and low administrative costs – you can open a SEP IRA account at virtually any bank, Mutual Fund Company or brokerage firm, and pay low or no annual account fees.
- Federal Tax Deduction – you are eligible to deduct the full amount of your contribution on your Federal form 1040. This deduction will reduce both your federal and state tax liabilities.
Example – Tax savings with the maximum contribution of $51,000 –
- Federal Marginal Rate of 35% – $17,850 tax savings;
- State Marginal Rate of 5.5% – $2,805 tax savings.
If you are starting a new business, have been a small business owner for years, or simply have some consulting income on the side, don’t overlook the great benefits of a SEP IRA. Contact your Aronson tax advisor or Lex Ruygrok at 301.231.6200 for more information.