A Wealth Building Tool For Self-Employed Individuals

Quote of the Month:

“Being busy does not always mean real work. The object of all work is production or accomplishment, and to either of these ends there must be forethought, system, planning, intelligence, and honest purpose, as well as perspiration. Seeming to do is not doing.”

— Thomas Edison – famous American inventor and businessman

The Overview

The SEP-IRA allows business owners to tax defer up to $61,000 toward retirement per shareholder. A standard traditional or Roth IRA account allows you to tax defer up to $6,000 per individual.

If you are self-employed, earning income, and NOT taking advantage of the SEP-IRA, get ready to cut your tax liability and save more money for retirement. All S corporations, partnerships, and LLCs qualify.

Today, we want to help you do this by taking advantage of SEP-IRAs. We want you to know everything about SEPs so you can start reaping the tax benefits.

What is a SEP?

SEP stands for Simplified Employee Pension, a simple plan that allows business owners/employers to contribute to individual retirement accounts.

Other retirement plans have annual filing requirements, hold stringent documentation rules, and commonly carry high administrative costs.

These costs normally include:

  • Setup fees

  • Administrative fees

  • Management fees

  • Transaction fees

  • And more

A SEP does not have the start-up and operating costs of a conventional retirement plan and allows for a contribution of up to 20 percent of each of the business’s employee’s pay.

Along with the benefits of compound interest paired with consistent retirement contributions, there are also major tax benefits of starting a SEP-IRA.

  • SEPs cost dramatically less to set up

  • Your taxable income can be greatly reduced

  • The maximum contribution is adjusted annually. Each shareholder can contribute 20% of self-employment income up to $61,000 (2022)

  • Contribution limits of traditional IRA accounts are today approximately 1/10th of a SEP’s limits

How the Tax Deferrals Work

Under a SEP-IRA, you can contribute 20% of your self-employment income. If you’re just getting started, revenue minus all expenses equals your self-employment income.

Example: If your self-employment income is $100,000, you can contribute $20,000. To deduct up to $61,000 per shareholder, your self-employment income would have to be over $200,000.

Example 2: If you’re in a 20% tax bracket, that would mean you’d save at least $4,000 by investing $20,000 into your retirement.

That’s less money for the tax man and more money compounding towards your retirement.

Other Things to Be Aware Of

1) While other IRA options do allow you to take loans from your account, a SEP-IRA does not.

2) Regardless of your income level, the SEP-IRA contributions will save you money as no other IRAs can compete with the contribution limits.

3) By creating a SEP-IRA under your corporation, you have control over managing your financial retirement nest egg by investing in IRS qualified investments like gold, real estate, stocks, etc.

4) As a business owner with a SEP-IRA, you can roll over money from your other retirement investments into the SEP-IRA penalty-free.

How Can I Set Up A SEP?

Generally, a SEP must be established and funded by your tax filing deadline. April 15th would be the deadline to establish and fund a SEP for the prior tax year.

Your business banker where your corporation bank account is located can assist you with the setup of your SEP-IRA as well as SEP expert Karen Dry at Northwestern Mutual. Contact Omni Resources if you’d like to learn more.

The Takeaway

The SEP works as a tool to direct the payment of hard-earned money into wealth building rather than tax payments. It’s simple to set up, low-cost, gives you control, and has high contribution limits for a retirement account.

One of the main advantages of owning your own corporation is the ability to contribute to your individual retirement account and direct it yourself. If you want to set up a retirement plan within your corporation, this is a great start.

Contact Us

Chat with us to find out how Omni Resources can work with you so you can stay organized and grow your business more quickly.


Office (888) 882-8483



Editor’s note: Nothing in this blog post should be construed as advice of any kind. Any legal, financial or tax-related content is provided for informational purposes only and is not a substitute for obtaining advice from a qualified legal or accounting professional.

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