How to save for retirement with a SEP IRA

There are a lot of perks to working for yourself and being your own boss. Typically, you get to create your own schedule, drive your business towards your vision, work with the people you choose to…you get the idea. But as much as running your own business is fantastic, there are a few downsides. And today, we wanted to talk about one of the major ones—not having automatic retirement savings. So, let’s make sure you’re planning for the future by means of saving for retirement with a SEP IRA (since we assume you don’t want to work for your entire life).

What is a SEP IRA?

A SEP IRA (or Simplified Employee Pension Individual Retirement Account) is a type of retirement account for businesses and people who are self-employed (that’s you!). And they are a great option for anyone who is not employed by a larger company offering a 401(k). SEP IRAs are easy to create and maintain because they have low setup costs and minimal paperwork—which makes them a convenient way for small business owners and freelancers to save for retirement.

How does a SEP IRA work?

The contribution limits on a SEP IRA are much higher than with other types of retirement accounts like 401(k)s or traditional IRAs. And yearly contributions can be up to 25% of your net earnings which is fantastic! (You can think of “net earnings” to generally mean profit but definitely consult with your CPA when doing your own calculations.) Another major bonus with this type of retirement account is contributions are considered pre-tax income so it can reduce your taxable income and help you save on taxes in the long run—killing two birds with one stone!

Pro-tip: You can invest the money you contribute to a SEP IRA in stocks, mutual funds, etc. which means the money you are saving for retirement can potentially grow. If you feel like this is something you’d like to try, we recommend hiring a financial advisor to guide you through the process.

Ways to save for retirement as a business owner

When it comes to saving for retirement as a business owner, the best way to go about it is to make a plan. And that plan can look different for everyone. We recommend that you start by researching different types of retirement accounts and figuring out what works best in your situation. And one great option is a SEP IRA, which we dove into! But no matter what type of retirement account you decide to go with, the most important thing to do is start saving for retirement now. Because the sooner you start putting away money for retirement, the more you’ll have when it comes time to retire. 

Here are some tips that might help you create this good habit:

  • Set money aside every month as you do your monthly bookkeeping
  • Put the money for your SEP IRA in a business savings account to make sure it’s not being spent
  • Contribute to your SEP IRA on a quarterly or annual basis

We hope this helps you make some important decisions about your long-term plan and that you start saving for retirement soon. Because you work hard every day and deserve to reach your financial goals—including a comfortable retirement!

This content has been written for informational purposes only and is not intended as financial advice. For questions related to your personal finances, please consult with a qualified professional. Always do your own research before making any financial decisions. Happy saving!

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