Individual retirement accounts, or IRAs, are a way to start planning for future financial needs. Putting money in a retirement account allows it to be invested in other vehicles such as stocks, bonds, and mutual funds. The level of risk and the diversity will grow your money over time. When you need it, it will be at a comfortable level to meet your needs.
Individual retirement accounts are set up through a bank or credit union or a mutual fund company. Each retirement account sets its limits for contributions that can be made each year. The investments that you make each year are tax-deferred. This means that taxes are not assessed on the contributions until such time as the money is withdrawn from the account.
People who have invested in a defined contribution plan (like a 401(k)) with their employer can roll their money over into an IRA when they leave their job. The money will continue to grow without penalty and the person will reallocate their funds for investing with the new IRA. There are traditional forms of individual retirement accounts and Roth accounts.
One such individual retirement account is the SEP IRA. This is a Simplified Employee Pension Plan. This is an employer sponsored individual retirement account. The employer makes contributions to an individual retirement account on behalf of their employees. The account is in the name of the employee and owned by them. The IRA can be set up by the employer or the employee, but the contributions are managed by the employer.
With defined contribution plans, there is no federal guarantee of benefits. The employee and the employer assume the risks of investing. A plan official is responsible for seeing that the monies are invested properly on behalf of the company and its employees.
Employers decide when an employee can open an account. There may be an age limit, or the employee may have to have been with the company at least a year in order to be eligible for an SEP IRA. Check with the human resources department at your job for more details on the SEP that they offer.
An SEP is a traditional IRA account. The contributions are limited to $4,000 annually. If the employee is aged fifty to sixty-nine, the contribution limit goes up to $4,500. Employers are allowed to contribute at most twenty-five percent of an employee’s pay for their individual account. Employers can also put away money for themselves in these plans. SEP IRAs are also options for self-employed individuals who want an alternative to the Keogh plan.
SEP individual retirement accounts are options that some companies choose for their employees instead of a traditional 401(k) plan. The account can be rolled over when employment ends and is tax-free until distribution.