Open a SIMPLE IRA through a bank or other financial institution. Establish a SIMPLE IRA plan anytime from January 1 to October 1.If you started self-employment after October 1, you can set up a SIMPLE IRA plan for the year as soon as administratively possible once you start your business. The SEP IRA is a version of a traditional IRA that offers similar tax benefits, in addition to much higher contribution limits. Individual 401 (k) plans are similar to employer-provided plans and offer high contribution limits, but they also carry a relatively high administrative burden.
Alternatively, you could consider a Self-Directed Gold IRA, which offers the same tax benefits as traditional IRAs but with the added benefit of being able to invest in gold and other precious metals. Some brokerage firms charge fees for individual 401 (k).If you exceed them, you won't be able to contribute at all to a Roth IRA or make tax-deductible contributions to a traditional IRA. A common misconception is to think that reports should reflect the contribution year reports for traditional and Roth IRAs. Fidelity reports SEP IRA contributions on IRS Form 5498 in the year they are made, which may not be the year of the deduction.
Depending on the type of IRA and certain other factors, these earnings, as well as the original contributions, may be taxed according to the type of ordinary income tax at the time of withdrawal. Nor is a Roth IRA specifically designed for self-employed small business owners, such as the SEP and SIMPLE plans. Traditional IRAs allow you to make tax-deductible contributions and Roth IRAs allow you to make after-tax contributions, and money grows tax-free. Yes, you can contribute to both an SEP IRA and a traditional or Roth IRA (assuming you meet the income limit requirements) in the same year.
If withdrawals are made within the first two years of participating in the SIMPLE IRA, the penalty increases to 25%. The SIMPLE IRA is designed for self-employed individuals and small business owners with 100 employees or fewer. It's as easy to set up as a standard IRA for self-employed people and offers a similar level of flexibility. Employees are responsible for opening their own SEP IRA accounts and for providing the account number to the employer.
You make contributions as an “employer” and as an “employee,” giving you the chance to save more. These plans offer tax advantages for contributions, but each has different rules, requirements, and contribution limits. As a business owner, you can choose whether to contribute to employee profit sharing plans, but you cannot discriminate in favor of highly paid employees.
