Essentials of SEP IRA for Self-Employed Income (For 2023 & 2024)

This SEP IRA overview has been revised with information for tax years 2023-2024. As I recently transitioned into full self-employment, it seemed appropriate for me to conduct further research on the three primary retirement accounts that can assist those earning 1099 income: SEP IRAs, SIMPLE IRAs and Solo 401Ks. If you plan to or hope to have self-employment income at some point in your career or have other side projects or side hustle income streams, this article should be of great interest. I have personally opened and contributed to both an SEP IRA and Solo 401K plan; therefore this overview of SEP IRA basics will serve as part 1 in a multi-part series which concludes with a comparison between retirement plans for self-employed income.

What is a SEP IRA? Contrary to popular belief, “SEP” does not stand for “self-employed plan” or “self-employment plan”. Instead, it stands for “Simplified Employee Pension”, with financial professionals pronouncing it as one word “sep”, rather than the more conventional “S-E-P”.

If you’re seeking to use a SEP IRA to funnel self-employment income toward retirement savings, don’t let its name intimidate you. Business owners may offer SEP IRAs for employees (this post won’t cover that topic), while an individual can create one of their own as well.

At their core, SEP IRAs resemble Traditional IRAs in that both are pre-tax investment vehicles that allow contributors to deduct contributions from their taxable income in order to save for retirement. The main distinction is who can contribute and the maximum contributions allowed each year.

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