Are you self-employed and looking for a simple way to save for retirement? A Simple IRA is a great option to consider. As the name implies, a Simple IRA (Savings Incentive Match Plan for Employees) is a simplified version of a traditional IRA that makes it easier for self-employed individuals and small businesses to save for retirement. In this blog post, we’ll discuss three simple IRA options that are available to the self-employed and how they can help you save for the future.
1) Traditional SIMPLE IRA
The Traditional SIMPLE IRA is a great retirement savings plan option for self-employed individuals. It’s also known as a Savings Incentive Match Plan for Employees (SIMPLE). This type of simple IRA offers tax-deferred growth, meaning that your contributions are not taxed until you withdraw them. Additionally, the traditional SIMPLE IRA allows for employer contributions.
When it comes to contributions, you can contribute up to $13,500 per year into a traditional SIMPLE IRA. If you’re 50 or older, you can make an additional catch-up contribution of $3,000 each year. Employers can match up to 3% of their employee’s salary, but they are not required to do so.
Withdrawals from a traditional SIMPLE IRA are subject to income taxes and can incur a 10% penalty if taken before age 59 1⁄2.
The traditional SIMPLE IRA is easy to set up and is perfect for those who are self-employed and want to contribute to their retirement savings on a regular basis. It is also a great way to maximize your savings while taking advantage of tax-deferred growth.
2) Savings Incentive Match Plan for Employees (SIMPLE)
The Savings Incentive Match Plan for Employees (SIMPLE) is a great option for the self-employed looking for a simple IRA. It’s an employer-sponsored retirement plan, which allows employers to contribute either a matching contribution or a 2% nonelective contribution on behalf of employees. Employers can contribute up to $13,500 in 2021 (or $16,500 if age 50 or over) and catch up contributions of up to $3,000 (for those aged 50 or over).
Employees can also contribute up to $13,500 in 2021 (or $16,500 if age 50 or over) and catch up contributions of up to $3,000 (for those aged 50 or over). Contributions must be made within the IRS limits each year.
The biggest advantage of the SIMPLE IRA is that it’s much easier to set up than a traditional IRA. It also allows more flexible contributions and withdrawals. But, keep in mind that there are still tax implications for making withdrawals prior to age 591⁄2.
Overall, the SIMPLE IRA is an excellent choice for the self-employed looking for a simple IRA option. This type of plan allows employers to make matching contributions on behalf of their employees and provides a great way to save for retirement without having to worry about complex paperwork.
3) SEP IRA
For self-employed individuals, a SEP IRA is one of the most simple IRA options available. A SEP (Simplified Employee Pension) IRA allows employers and employees to contribute to a retirement plan that offers tax-deductible contributions, tax-deferred growth, and ultimately, tax-deferred distributions.
With a SEP IRA, employers can contribute up to 25% of an employee’s compensation or $58,000, whichever is less. There are no employee contributions allowed with a SEP IRA.
Unlike a traditional IRA, with a SEP IRA, employers are able to make contributions to employees regardless of their earnings level or contribution limits. This makes it an attractive option for self-employed individuals who have variable income levels or fluctuating contributions throughout the year.
Furthermore, self-employed individuals can also benefit from the ease of setting up and administering a SEP IRA. It takes very little paperwork to establish and it doesn’t require annual filings like other retirement plans.
In summary, a SEP IRA is an ideal simple IRA option for self-employed individuals who want the tax benefits of contributing to a retirement account, but don’t want the hassle of more complicated retirement plans.