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But you get a nice tax break for your generosity because contributions to your and your employees’ SEP-IRAs are tax deductible. SEP-IRA contributions are immediately 100% vested, so an employee ...
In the above example, where an employee earns $40,000 and the employer contributes 25% of that, $10,000, the employee has received $50,000 total, of which 20% goes to the SEP-IRA. When a business is a sole proprietorship, the employee/owner both pays themselves wages and may also make a SEP contribution, which is limited to 25% of wages ...
Before 2023, a SEP IRA came in only one type: pre-tax. Employers contributed money for employees, but when the money was withdrawn at retirement, the employee paid tax at ordinary income rates ...
Roth SEP IRA: The Roth SEP IRA was created in 2023, as part of the SECURE Act 2.0. You may take out contributions at any point without tax or penalty, since you’ve already paid tax on the money.
The only remaining unprotected areas are the SIMPLE IRA and the SEP IRA. The SEP IRA is functionally similar to a self-settle trust, and a sound policy reason would exist to not shield SEP IRAs, but many financial planners argue that a rollover (or direct transfer) from a SEP IRA to a rollover IRA would give those funds protected status, too.
If you have earned income, you can open an IRA and make a contribution up until tax filing day. The annual contribution limit for IRAs — both traditional IRAs and Roth IRAs — is $6,500 for 2023.
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