Retirement Wealth With a Defined Benefit SEP

Anyone with self-employment income from personal services, including sideline business income from a website, consultant’s fees, freelance income and director’s fees, can have a self-employed retirement plan. They’re approved by the IRS, and their tax benefits weren’t cut back by tax reform.

The Primary benefits include:

• Contributions to the plan are tax deductible.

• Earnings on contributions are not taxed while in the plan.

• Taxes are deferred until retirement, when you are likely to be in a lower tax bracket than you are now.

Defined contribution self-employed retirement plans, the most common kind of self-employed retirement plans. don’t work for someone who is 50-plus because the most you can put away each year is effectively 20% of self-employment income, up to $50,000. This is enough for people who have many years to save before retiring, but not for people who are closer to retirement.

However, a self-employed defined-benefit plan. with defined benefit plans you can put away a much bigger percentage of your income. That’s because you are funding an account that is designed to pay you a fixed monthly amount when you retire. So the older you are, the more you can contribute to the plan each year.

They’re perfect for someone who has 10 to 15 years to go before full retirement.

Opportunity: Because contributions are deducted on your tax return each year, you can shelter large amounts of income during your peak earning years. Money in the account builds up tax free until withdrawals begin.

How defined benefit plans work: The size of your annual retirement payment is based on a percentage of your salary and the number of years that you have remaining to work before retirement. Next, actuarial tables are used to calculate how much money must be contributed to the defined benefit plan every year.

Tax rules are much stricter for defined-benefit plans than for defined contribution plans. You must make minimum contributions every year or face a 10% under funding penalty. The defined-benefit plan must be custom-made for you by a pension specialist. Expect to pay between $1,000 and $2,000 a year to administer the plan.

With your own Retirement Website you can easily have a healthy SEP working for you and growing your wealth. Successful Web Sites For Retirees