Are you wondering how much you’ll be able to contribute to your SEP in 2015? The good news is that you’ll be able to receive $1,000 extra dollars in 2015 contributions to your SEP-IRA. Employers are going to be able to contribute the lesser of 25% of your net compensation to this retirement plan or $53,000 in total. There aren’t any catch-up amounts that are allowed for this retirement plan and elective deferrals are not allowed.
The one exception to this rule are employees who have a grandfathered SARSEP IRA that was established before 1997. Employees in this situation were allowed the opportunity to make an elective salary deferral contribution as the plan was similar to a 401k. The amount allowed for these elective contributions in 2015 is going to be $18,000 or 25% of total compensation, whichever is less.
What Can You Put Your SEP Contributions Toward?
One of the advantages of contributing to a tax advantaged IRA is that you’ve got a wide variety of investment options that can be as conservative or as aggressive as you want them to be. Many are already investing into stocks, bonds, CDs, and mutual funds as a way to have their IRA grow. Here are some of the other options that are available that could expand that growth even further and give you some needed diversity in your portfolio.
Real estate. If you’re investing into real estate with an IRA, it is important to remember that all funds must come from your tax advantaged account. You cannot combine funding resources. The usual method of a real estate investment in this form is to purchase land or a property, let is appreciate in value, and then sell it for a profit. Rental real estate is also a possibility, but it takes on more risk and cost because you must hire a custodian through your IRA to manage the property for you. You cannot live on or take physical possession of the real estate either. All property taxes would also be paid by the IRA.
Gold, silver, and other precious metals. Precious metals can be purchased in two forms: as a paper asset or as a tangible asset. The easiest method to add these metals to your SEP IRA is to purchase ETFs or stocks that represent the value of the metal. You can also use IRA funds to purchase actual metals, but then you’d have to hire a third-party custodian to secure the metals at an independent location. This makes the tangible asset a little more difficult to turn into cash when it’s time to take distributions.
Private loans. As long as someone is qualified to receive a loan, you can create a private loan where the principle and interest would go directly into your IRA account. This form of self-directed IRA lending can be quite lucrative, but it is important to remember that there is a risk with any loan and that it could default. You cannot create an IRA loan agreement for a direct family member, their spouses, or anyone who is affiliated with your IRA account. Business partners are also typically excluded.
Company equity. You can actually purchase direct equity in a company and turn the capitalization of that equity into tax-free or tax-deferred retirement income. This IRA option is a little more difficult to accomplish as not every IRA provider allows self-directed account owners to make a private equity purchase.
Yourself. Although you can’t fund a direct loan to yourself for business purposes from your IRA, you do have the ability to bring your experience to the table and use it to create real wealth for your retirement. Investments into everything from race horses to golf courses have been made by savvy investors just like you.
Does SEP Investment Strategy Matter For Baby Boomers?
Baby Boomers have about a decade or less to accumulate the wealth they need to retire and many are far behind where their targets need to be. The issue is two-fold: Baby Boomers spend 75% of the disposable income that is available in the American economy right now and they aren’t maximizing the use of catch-up contributions to certain IRA accounts. Although SEP contributions don’t qualify for catch-up funding, you may be able to discuss how much an employer may be willing to contribute to your SEP IRA in the future so you can better plan for your retirement.
What If You Haven’t Received Your Contribution Yet?
If you haven’t received an expected SEP IRA contribution yet from your employer, then the most likely cause for this is that they filed for and received a tax extension. The deadlines for contributions are extended for the tax year as each extension is approved. If a small business owner receives a 6 month extension for the taxes that are due, then their contributions to the IRA are not due until the extension deadline. Although uncommon, a secondary extension would also extended the deadline to make the necessary contribution.
If you are self-employed, the same rules apply. You can make a contribution as the employer to your IRA up until the taxation deadline. The maximum contribution that can be made to a self-employed SEP IRA, including sole proprietors, is just below 18.6% of net profit. This assumes that there are not limits in place on that income that would reduce the amount of net profit that has been received.
Are You Ready To Explore SEP IRA Options?
If you are employed in any fashion right now, whether you’re a young Millennial or a Baby Boomer just a couple years away from retiring, an SEP IRA is a great retirement plan to consider if it is available. Use these contribution limits to make sure that your contributions are correct, that your employer’s contributions are timely and correct, and then invest the funds in your IRA using your experience. In doing so, you’ll be able to retire comfortably and enjoy the good life.