The importance of having a strongly backed retirement savings plan has been emphasized by many market analysts and has been taught over experiences is very important and crucial to plan for form the very beginning of one’s adult life. Having understood and seen the craze retirement savings spread around one’s interest, banking institutions have time and again evolved and developed tools in their system which is used to give maximum benefit to its customers.
IRA or individual retirement account is a facility built into the banking system that gives commoners an opportunity to save the maximum amount of funds that can be kept for their retirement period. The concept of IRA was introduced when it became a reality to exempt various sources of investment from mandatory taxes which are otherwise levied on normal circumstances.
There are various different kinds of IRA accounts depending on the necessity the IRA is needed for. SEP IRA is a kind which has known to help a wide range of citizens to plan their grey hair days with care and comfort. SEP stands for supplies employee pension. As per guidelines placed by the government anyone above the age of twenty-one is eligible to apply for having a SEP IRA. Since such IRA arrangements are placed specifically by employers for their employees, it is necessary for the applying candidate to have worked in the company for at least three of the previous five years of the employment flow. Keeping this in mind, the applicant also needs to earn a minimum of $600 as compensation from their employer as per the taxable year 2015.
As per SEP IRA, a certain percentile of the total contribution is given by the employer; however, this percentile is limited by regulations. Twenty-five percent of the total funds accumulated can be contributed by an individual’s employer. A maximum of 25% of a person’s total income can be put aside for SEP IRA. Either the percentile can be followed to understand the SEP IRA contribution limit, or a minimum value can be considered which as per 2015 and 2016 was $53,000 and as per 2017 the limit is $54,000.
When SEP IRA is calculated for self-employed individuals the calculation is placed a bit differently. For self-employed individuals, a maximum of 18.6% of their total profit attained can be collected towards IRA contributions. Here there is a minute yet very important point is to be kept in mind. The SEP IRA contribution limit is calculated not from the net profit gained by the self-employed individual, but it is calculated as per profit after normal self-employment tax is deducted. Seeing this an arrangement is made to make sure there is no unnecessary loss that account holder has to incur. Keeping all miscellaneous rules and regulations in mind the final conclusion on the contribution limit is twenty percent of the profit calculated after the tax deduction as per normal tax norms. It is not a mandate to contribute in SEP IRA every year, one can skip a year of they need to from putting contributions inside the plan.
As SEP is an employer contribution attention is to be paid, if an employee decided to discontinue his/her employment with the respective company anytime before the year finishes, the employer still is liable to contribute their share for the amount saved up until the date of employment or as stated by rules at the time of joining. Age limit to SEP IRA contribution although is not limited, an employer is responsible to contribute even if the applicant’s age is above over 70.
SEP IRA contributions for a fiscal year can be made keeping in mind the deadline of yearly income tax returns. If an extension is obtained by an individual on their income tax returns then the SEP IRA contribution can be made at par with the extension deadline. If a SEP IRA contribution is not made on time, it may be added up the next fiscal year.
Any excess contribution made toward SEP IRA will be taxed under the normal income tax bracket.
It is very important for a proper understanding to be attained on the points which are to be remembered when placing themselves under such schemes. Less or no knowledge about the SEP IRA contribution limit plans might cause applicants and candidates to miscalculate and misjudge their position as far as retirement savings is considered. SEP IRA contribution limits have made it easy for one and all to assimilate the best that individual retirement account has to offer. The way explanation for employed and self-employed has been taken care of by the SEP IRA guidelines helps both employers and employees to have clear expectation from the plan. When it comes to saving for one’s retirement, one usually pays the ultimate amount of attention to detail as to how they plan their senior years. Only in knowing all information to their fullest will they be able to attain the best value from the plan.
