Advanced Tax Planning for High-Net-Worth Individuals
High-net-worth individuals face complex tax challenges. Learn about advanced tax planning strategies for investments, estates, retirement, and...
Emily Goodman, CFP®
Vice President
Central Coast, California
Maximize your retirement savings with SEP IRAs. Learn contribution limits, tax benefits and strategies for self-employed individuals.
As a successful self-employed individual or small business owner, you understand the importance of maximizing every opportunity. When it comes to retirement savings, a SEP IRA (Simplified Employee Pension Individual Retirement Arrangement) can be a powerful tool in your financial toolkit. Let's explore how you may potentially make the most of this retirement vehicle.
Before diving into maximization strategies, let's refresh our understanding of SEP IRAs:
Maximizing your SEP IRA is about more than just contributing the maximum annual amount allowed. It involves strategic planning, smart investment choices, and a thorough understanding of the rules and benefits associated with these unique retirement accounts. By implementing the following strategies, you can make the most of your SEP IRA, while potentially reducing your current tax liability.
The key to maximizing your SEP IRA is to contribute as much as possible. As of 2025, you can contribute up to 25% of your net self-employment income or $70,000, whichever is less. This is a significant increase from previous years, allowing you to save even more for retirement. Tip: Work with your CPA and financial advisor to determine the optimal contribution amount based on your business's profitability and your personal financial goals.
One of the SEP IRA's greatest strengths is its flexibility. Unlike some other retirement plans, you can adjust your contributions year-to-year based on your business's performance. Strategy: In highly profitable years, maximize your contributions to potentially reduce your tax liability and boost your retirement savings. In leaner years, you can reduce your contributions without penalty.
You have until your tax filing deadline, including extensions, to make contributions based on the previous year’s income. Tip: If you're unsure about your final earnings for the year, you can wait until you've completed your tax calculations to determine and make your SEP IRA contribution. Your CPA and financial advisor can help you with this, too!
SEP IRAs offer a wide range of investment options. At EP Wealth, we manage SEP IRAs as part of your total diversified portfolio. You can invest in mutual funds, ETFs, stocks, bonds, and money market funds, just like with other retirement accounts. Strategy: Spread your investments across different asset classes, sectors, and geographical regions to balance risk and reward.
A SEP IRA doesn't prevent you from having other retirement accounts. You can contribute to a SEP IRA in addition to a 401(k) through regular employment, as well as a traditional or Roth IRA (subject to income limits).
Like traditional IRAs, SEP IRAs are subject to RMDs starting at age 73. Tip: Work with your financial advisors to plan your withdrawals strategically to minimize tax impact in retirement. You may consider converting pretax funds to a Roth IRA in lower earning years to potentially reduce future RMDs.
SEP IRA contributions are tax-deductible for your business in the year they are made. This can significantly reduce your taxable income. Tip: Consult with your financial advisor or CPA to optimize the tax benefits of your SEP IRA contributions.
To potentially minimize taxes when withdrawing from your SEP IRA in retirement:
While SEP IRAs are excellent retirement vehicles, it's worth comparing them to Individual 401(k)s, also known as Solo 401(k)s or i401(k)s:
A SEP IRA can be an excellent choice if:
However, if you're looking for even higher contribution limits or additional features like catch-up contributions, an Individual 401(k) might be a better fit.
Maximizing your SEP IRA is just one piece of a comprehensive retirement strategy to plan for a secure financial future. At EP Wealth, we're here to help you navigate your retirement planning options with the goal of building a secure financial future tailored to your unique situation.
Schedule a consultation with one of our financial advisors to discuss how you can maximize your SEP IRA or explore other retirement savings options like Individual 401(k)s. Let's work together on a plan so your hard-earned success translates into a comfortable and prosperous retirement.
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