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SMALL BUSINESS | RETIREMENT ACCOUNTS | SELF EMPLOYED |
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SEP IRA (Simplified Employee Pension IRA) |
Individual 401(K) | |
Description | As a small business owner, you can make tax-deductible contributions. | As a small business owner with no employees, you may be able to contribute more than with other types of retirement plans. |
Eligibility to Contribute | If you are a small business owner, you can contribute at any age. | If you are self-employed, a spouse, or a business partner you can contribute at any age. |
Annual Maximum Contributions | As a small business owner, you are eligible for the following: 2020 tax year: Contribute up to 25% of your compensation or $57,000 whichever is less |
Contributions are funded from a salary. Deferral, profit sharing or a combination thereof. 2020 tax year: Profit sharing: up to 25% of compensation or $19,500($26,000 if 50+ years of age) Combination may not exceed $57,000 |
Tax Deductible Contributions | Your contributions and your employees contributions are deductible from your company's federal taxable income. | Your contributions and your business partners contributions are deductible from your company's federal taxable income. |
Earnings and Withdrawal Taxation | Tax-deductible contributions and earning are taxed as ordinary income when withdrawn. | Tax-deductible contributions and earning are taxed as ordinary income when withdrawn. |
Premature Withdrawal Penalties | 10% IRS early withdrawal penalty if withdrawn before age 59 1/2 unless an IRS exception applies- No penalties for 2020 if COVID-19 related. | 10% IRS early withdrawal penalty if withdrawn before age 59 1/2 unless an IRS exception applies- No penalties for 2020 if COVID-19 related. |
Required Withdrawals | Must begin at age 72- 2020 is now optional. |
Must begin at age 72- 2020 is now optional |