SEP IRA Contribution Limits for 2015

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.

What is a Trustee to Trustee Transfer?

If you leave your job and your retirement plan is distributed through the employer, what can you do to keep the funds active without paying an early distribution penalty to keep your money? This is where a trustee to trustee transfer can become beneficial. This happens when the movement of retirement funds that are in different types of plans are rolled over or consolidated into a single plan from one financial institution to another.

Let’s say that you have an employer-sponsored 401k at your job, but you’ve accepted a new position with a different employer that doesn’t offer a retirement benefit. Once you leave the employer, you’ll want to take control of your funds with you, right? If you took that 401k and rolled it over into a self-directed 401k at a different account holder, then this would be considered a trustee-to-trustee transfer.

If you performed an IRA rollover from the 401k to a traditional IRA, it would also be considered a trustee-to-trustee transfer if the account holder of the retirement plan became different. It is not a reference to who is directing the IRA’s investments, the beneficiary if it should change because of tragic circumstances, or a change in investments.

What Do You Need to Know About IRA Rollovers?

If you’ve left your employer and you cashed out your retirement plan, then there is a good chance that 1/5 of the funds from that plan will be withheld to cover any tax responsibilities and penalties that you may need to pay. If you take those funds and roll them over into an IRA within 60 days of cashing out the retirement plan, then you can recovered the withheld amount.

You are responsible for depositing the 20% that was withheld into the rollover IRA in order to release the full amount of funds that was withheld upon distribution.

If you cannot or will not make up the 20% difference in funding from the cash out as you start the rollover IRA, then the IRS considers the action a distribution and this may subject you to additional taxes as it will be treated as income. You will need to consult with a tax advisor you trust in this situation to consider what your tax liabilities would be.

You can avoid all of this if you just perform a direct rollover, even if it is one that is trustee-to-trustee.

How Can a Direct Rollover Be Achieved?

If you are leaving your employer and you want to take your retirement funds with you without paying a penalty, then you will want to perform a direct rollover. It’s the easiest option to keep the money in your control and you can roll the money into your IRA directly from the employer plan. You’ve got several options to consider that can help you avoid penalties.

  • You could consolidate your employer plan into a current IRA that you already control.
  • You could place your employer 401k and your current IRA into a new IRA that includes both funds.
  • You might be able to transfer your funds to the retirement plan of your next employer, even if you plan to be self-employed.
  • You don’t have to transfer your assets at all and just leave them where they are.

The only issue in leaving the retirement funds alone is that you still need to stay active with the plan in order to keep it investing. Plans that have inactivity can have the cash dumped into a money market plan that won’t grow any money right now. Over time, with maintenance fees, those retirement balances could hit zero on you.

Why Choose To Rollover Into an IRA?

A trustee-to-trustee transfer into a consolidated IRA can give you a better picture of your overall retirement prospects. It will also give you more leverage when looking to take advantage of an investment opportunity. If you need to protect your retirement, for example, then you could dump all of your funds into precious metals in one place instead of being required to initiate multiple transfers that could each have an associated cost.

Transferring into a Roth IRA if you qualify can also provide a tremendous advantage. The funds that grow in this IRA are tax-free, which means you won’t have to make minimum withdrawals and can contribute contributing to the retirement after you reach a specific age. You’ve already paid the taxes on Roth IRA contributions as well, so you get tax-free growth instead of tax-deferred growth. Rollovers from traditional retirement plans are treated as a distribution, however, so you would have tax liabilities in the year you transitioned to the Roth IRA.

Is There an Advantage To an Employer Consolidation Instead?

If you are going to a new employer with your 401k, you may wish to just transfer the old plan into the new plan. This is especially true if you’re planning to take out a loan on the 401k amount that you have in equity. If you’re above the age of 70.5 and transitioning to a new employer, this will delay the requirement to take distributions.

You may also have a debt situation that may make your retirement plan liable for creditor access if a judgment is obtained against you. Certain retirement plans have greater protections against creditor access, so a trustee-to-trustee transfer might be the best way to protect your money. It can consolidate your plan into something that can still be used for your retirement.

The worst case scenario is taking a full cash-out of your employer sponsored 401k. This can boost your income into a new tax bracket, make you liable to pay penalties of 10%, and you’ll have to pay taxes on the amount received. On a $15,000 cash out, you might lose $1,500 to the penalty and between $2,500-$5,000 on the tax responsibilities. Just about any rollover option is better than this if your finances will allow it.

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