SEP IRAs and Uber drivers, a match made in Heaven

You see them all the time. Uber drivers. Driving for Uber is one of many options for those wishing to be self-employed though and I’ll bet you most of those folks don’t know about some lesser known retirement benefits they can tap into. This post will examine Sep IRAs for those who are self-employed and curious to learn about this pension option.

What is a Sep IRA?

A Simplified Employee Pension IRA is similar to a traditional IRA, but there is a difference in who qualifies. This plan is tailored to business owners or self-employed individuals who want to set aside current earnings for years when income is latent. Any IRA is an attractive option because individuals make the most in terms of salary during their younger years, while income becomes minimal after retirement. So, for someone who is self-employed, he or she can deposit part of the income now and withdraw it after a certain age. Although the requirements may change every year, 2018’s limit for income contribution is $55,000 or 25% of your income (whichever is the lower amount). When income is deposited, it is tax free and the amount contributed is tax deductible; however, when the money is withdrawn, it is taxed at the current tax rate.

It is important to note that an individual can contribute to multiple pension plans during the year. Understand, however, that an accountant should help you determine how much to deposit in which plan as there is a limit. Contributing too much in one year could lead to fines from the IRS. A self-employed professional should contribute to a Sep IRA every year in order to maximize savings growth, but a Sep IRA does not require an individual to contribute on a yearly basis. This allows a self-employed person the ability to contribute when business income is high, and hold off when income for the year is low. Once an individual turns 59 and a half, then he or she may begin to withdraw funds after taxation. For more information, the IRS has helpful links to further simplify the retirement fund process.

The Uber/Lyft Case

A common form of self-employment in 2018 is as an Uber or Lyft driver. If you are working long hours through the night and need a plan to kickstart your retirement savings, then a Sep IRA is a perfect way to do so. Due to the plan’s flexibility and high contribution limits, a driver who acts as a self-employed partner should contribute income every year. A self-employed individual has until the tax-filing due date set by the IRS to contribute to the plan. A Sep IRA is simple to set up and allows for an Uber driver to quickly start accumulating income for future years.

Why a Sep IRA?

As previously discussed, there are many advantages to starting a simplified employee pension plan. First, they are simple; any self-employed individual can quickly and effortlessly set up a Sep IRA. Secondly, these plans have low administrative costs and responsibilities, making them an ideal tool for self-employed individuals who are working hard to generate higher income.

Lastly, Sep IRAs enable an individual to contribute one year and forgo contribution the next year. This is ideal for those who work in a job function with varying certainty of income. Ultimately, it is crucial to start saving for retirement while employed. For those that are self- employed a simple, cost-effective, and flexible plan such as a Sep IRA is a good place to start.