\nCons<\/td>\n | \u2022 Contribution limit is low \u2022 No immediate tax break on income taxes \u2022 Potentially higher administration costs<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n\n\n\nRoth IRA contributions are after-tax dollars. There is no immediate tax benefit to a Roth account. Because you have already paid tax on these dollars, all money inside the fund is not subject to tax. Not even the interest or earnings! <\/p>\n\n\n\n Your investment will grow tax-free.<\/strong> A Roth IRA is not subject to tax at retirement.<\/p>\n\n\n\nContribution limits are the same as a traditional IRA at $6,000<\/strong> annually or $7,000<\/strong> for people over 50 years of age. It is possible to have a traditional IRA and a Roth IRA account at the same time.<\/strong> <\/p>\n\n\n<\/div> \ud83d\udca1 Note<\/strong>: It is important to note that those contribution limits are for combined IRA accounts.<\/p><\/div>\n\n\nSEP IRAs<\/h3>\n\n\n\nA Simplified Employee Pension <\/strong>is formed by employers and those self-employed. Employers make tax-deductible contributions on behalf of their employees or themselves into a SEP IRA.<\/p>\n\n\n\nSEPs are similar to traditional IRAs<\/strong>. Since they are contributing untaxed dollars, employees can earn a tax break by lowering their annual taxable income by the contribution amount.<\/p>\n\n\n\n\n \n\n\nSEP IRA<\/th>\n | Overview<\/th>\n<\/tr>\n<\/thead>\n | \n\nSet up by<\/td>\n | Your employer or yourself if you are self-employed<\/td>\n<\/tr>\n | \nMaximum Contributions 2022<\/td>\n | You can contribute up to 25% of your income up to the value of $61,000<\/td>\n<\/tr>\n | \nPros<\/td>\n | \u2022 High annual contribution limit \u2022 Can combine with a traditional IRA or Roth IRA \u2022 Contributions are tax-deductible \u2022 Potential tax break on current income taxes<\/td>\n<\/tr>\n | \nCons<\/td>\n | \u2022 Retirement withdrawals are subject to income tax \u2022 Employers are required to contribute proportionally \u2022 Withdrawals earlier than 59.5 years of age may be subject to a 10% penalty<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n\n\n\nThe most significant advantage of having a SEP IRA account is that it has a much higher annual contribution limit than traditional IRAs<\/strong>.<\/p>\n\n\n\nContributions can be up to 25%<\/strong> of the employee’s compensation for the year or the maximum amount of $61,000<\/strong> for 2022.<\/p>\n\n\n\nSEP IRAs are beneficial for those that are self-employed or those employers that want to make a matching contribution to their employee’s retirement accounts.<\/p>\n\n\n\n SEPs are treated like traditional IRAs by offering the same investment options and tax benefits.<\/p>\n\n\n\n It is beneficial for employers to contribute because they receive a tax deduction. Businesses also do not have to commit to an annual contribution and can adjust their amounts annually.<\/p>\n\n\n\n SIMPLE IRAs<\/h3>\n\n\n\nA SIMPLE IRA plan (Savings\u00a0Incentive\u00a0Match\u00a0Plan\u00a0for\u00a0Employees)<\/strong> is suited to small employers of less than 100 employees <\/strong>that are not currently sponsoring a retirement plan such as a 401(k).<\/p>\n\n\n\n\n \n\n\nSIMPLE IRA<\/th>\n | Overview<\/th>\n<\/tr>\n<\/thead>\n | \n\nSet up by<\/td>\n | Your employer<\/td>\n<\/tr>\n | \nMaximum Contributions 2022<\/td>\n | $13,500 or $16,500 if you’re over 50<\/td>\n<\/tr>\n | \nPros<\/td>\n | \u2022 Large number of investment options \u2022 Eligibility requirements are low \u2022 Plan option for employers that cannot offer a 401(k) \u2022 Less paperwork and admin burden for employers<\/td>\n<\/tr>\n | \nCons<\/td>\n | \u2022 Employer contributions are mandatory \u2022 No Roth option \u2022 Withdrawals earlier than 59.5 years of age are subject to a 25% penalty \u2022 Employers may not provide another retirement plan<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n\n\n\nSIMPLE IRAs are designed for employers that want to contribute to their employee’s individual retirement plan<\/strong>.<\/p>\n\n\n\nEmployers can make up to 3%<\/strong> matching retirement account contributions or offer an across the board 2%<\/strong> (the 2% doesn’t require employee contributions) account contribution for all employees.<\/p>\n\n\n\nAnnual SIMPLE IRA contributions cap out at $14,000<\/strong> annually as of 2022.<\/p>\n\n\n\nCatch-up contributions for over 50-year-old<\/strong> retirement savers can add an additional $3,000<\/strong>.<\/p>\n\n\n\nThe SIMPLE IRA is beneficial to employers as there is very little extra paperwork involved in setting up and managing their accounts. <\/p>\n\n\n\n The account is opened through a financial services provider that manages most of the administration and documentation.<\/p>\n\n\n\n Unlike a SEP IRA, with a SIMPLE IRA, the employer must contribute to the accounts every year.<\/strong> The employer may change between the 3%<\/strong> matching contributions to the 2%<\/strong> across-the-board contributions if they follow IRS rules.<\/p>\n\n\n\nTo participate in your employers, SIMPLE IRA plan employees must have earned more than $5,000<\/strong> in any two previous calendar years and are expected to earn a minimum of $5,000<\/strong> in the year that they take part in the plan.<\/p>\n\n\n\nEmployers can also choose to exclude participant employees if they receive alternative compensation through unions.<\/p>\n\n\n\n Traditional IRA vs 401k<\/h2>\n\n\n\nIf your employer offers a 401(k) with matching contributions, take advantage and enroll! This is as close to free money as you can get.<\/p>\n\n\n\n If your employer\u2019s 401(K) doesn\u2019t offer great investment options, then only put what you need to in to get the full benefit of any employer match contributions and put the rest of your savings into an IRA.<\/p>\n\n\n\n If your employer only offers a SEP IRA or SIMPLE IRA, and you still have the financial capacity to open a traditional IRA do that as well.<\/p>\n\n\n\n Saving for retirement as early as possible will fundamentally change your future<\/strong>. Opening an IRA and contributing money through your employer 401(k) or SEP IRA account annually will really add up over time.<\/p>\n\n\n\nYour savings combined with employer contributions will slowly grow, and over time you may have a sizable nest egg for your future.<\/p>\n\n\n\n Roth IRA vs 401k<\/h2>\n\n\n\nBoth a Roth IRA and a 401(k) plan allow you to grow your savings for retirements.<\/p>\n\n\n\n While there are no tax deductions for Roth IRA contributions, the funds can be withdrawn tax-free<\/strong> in retirement.<\/p>\n\n\n\nRoth IRA contributions are limited to $6,000 if you are under the age of 50 years, or $7,000 if you are older than 50 years. <\/p>\n\n\n\n The contributions for 401(k) plans in 2022 are limited to $20,500 per year<\/strong> for employees under 50 years, and $27,000 per year<\/strong> for those older than 50 years.<\/p>\n","protected":false},"author":4152,"featured_media":12177,"comment_status":"open","ping_status":"closed","template":"","meta":{"disable_branded_featured_image":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","ep_exclude_from_search":false,"footnotes":""},"categories":[16],"_links":{"self":[{"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/wiki\/12130"}],"collection":[{"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/wiki"}],"about":[{"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/types\/wiki"}],"author":[{"embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/users\/4152"}],"replies":[{"embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/comments?post=12130"}],"version-history":[{"count":50,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/wiki\/12130\/revisions"}],"predecessor-version":[{"id":79284,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/wiki\/12130\/revisions\/79284"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/media\/12177"}],"wp:attachment":[{"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/media?parent=12130"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/categories?post=12130"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}} | | |