If you’re trying to reduce your self employment taxes, reduce your federal income taxes, have a Roth IRA and contribute more then you should consider making this retirement plan change right away. In this video I’m talking about the IRA for self employed mistake that no one is talking about. I don’t know why it’s getting skipped so much lately but this IRA is basically obsolete. There is a better choice for most situation.
The secure act of 2019 changed a lot more than most small business owners and self employed realized.
If you can think of another reason this IRA is better than the 401k please let me know in the comments below.
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For entrepreneurs and business owners, finding the right retirement plan can be a daunting task. With so many options to choose from, it can be hard to decide which plan is the best fit. One retirement plan that may be particularly appealing to the self-employed is the Simplified Employee Pension Individual retirement account (SEP IRA).
The SEP IRA is a tax-deferred retirement savings plan that allows self-employed individuals and small business owners to set aside a sizable amount of money each year for retirement. Contributions to a SEP IRA are tax-deductible, which means they reduce the individual’s taxable income for the year.
One of the main advantages of the SEP IRA is its flexibility. Self-employed individuals can choose to contribute anywhere from 0% to 25% of their net earnings, up to a maximum of $57,000 (as of 2020) annually. This flexibility allows individuals to adjust their contributions depending on their income and business needs.
Another benefit of the SEP IRA is its simplicity. It is easy to set up and maintain, and there are no annual filing or administrative requirements. Contributions are made directly to the employee’s individual retirement account and can be invested in a wide range of investment options, based on the individual’s risk tolerance and investment goals.
The SEP IRA is also a great retirement savings option for small business owners, as it allows them to provide retirement benefits to their employees as well. Any employee who is at least 21 years old and has worked for the employer for three of the past five years can participate in the SEP IRA plan. However, the employer is not required to make contributions on behalf of their employees.
It is important to note that, unlike other retirement plans such as the 401(k), the SEP IRA does not offer any catch-up contribution options for those aged 50 and over. Additionally, individuals who may wish to withdraw funds before age 59 ½ may be subject to a penalty.
In conclusion, the SEP IRA can be an attractive option for the self-employed and small business owners looking for a flexible, simple retirement plan. With its high contribution limit and tax-deductibility, it may enable individuals to easily save for their retirement while also attracting and retaining employees. However, it is important to weigh the benefits and disadvantages of each plan and seek advice from a financial professional to determine which retirement plan is best suited for one’s individual needs and circumstances.
Hi Travis, Great explanation on how to reduce self-employment taxes by having distributions. I have a question when you have a full-time job and own a small business (LLC taxed as an S-Corp). Say the full-time job earns more than $147,000 gross income that maximizes the Social Security portion of the employment taxes. And now having income from the small business owned, say making a $50000 salary paying 6.4% of Social Security tax from the employer side + employee side in paychecks. Employee portion of social security tax can be potentially claimed in the tax returns while the small business loses its portion of the social security tax. Is there a way for the small business to claim its social security tax returned back from IRS?
How to avoid self employment tax for Registered Nurse
What website’s calculator are you using in the video? Thanks for the video.
Hey, great video. So far this year, as a self employed, I maxed out Roth IRA $6000, SEP IRA $5000(I know exactly how much I will make this year, I just made it a little lower just to make sure), then I converted that SEP IRA to Roth.
Now can I open Solo Roth 401k with Vanguard, and contribute $19500?
In the end I will have contributed $30500, TAX FREE for life.
Hi Travis, can you address the situation where you have a 401k and maxing it out and also have a side hussle (say making $15,000/year). Do you still recommend a solo-401k? If so, doesn't that take away from the retirement contributions from the main job?