What is a SEP IRA?

The Simplified Employee Pension Individual Retirement Arrangement, or SEP IRA, is a way for small business owners and people who are self-employed to save for retirement. It's similar to a 401k, but it's much simpler and less expensive to administer.

The main benefit of a SEP IRA is that you can save a lot more money than you can in a traditional IRA. You can contribute up to 25% of your net income, to a maximum of $54,000 per year. Like a traditional IRA, SEP IRA contributions are pretax income: you don't pay tax on your contribution when you invest it, but do pay tax when you withdraw it.

Is there anything to be careful about?

If you're using a SEP IRA for your employees as well as yourself, note that most SEP IRAs require the same proportional contribution percentage for the employer and each eligible employee. So if you contribute 25% to your net income to your own account, you'll also have to contribute 25% of your employees' net income to their accounts.

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