Individual retirement accounts (IRAs) may provide a tax-advantaged way for you to save for retirement, check out the IRA options available through First Minnetonka City Bank.
A traditional Individual Retirement Account allows you to save for your retirement and to defer taxes on the earnings of your contributions until they are withdrawn. Certain contributions may be partially or fully tax deductible in the tax year for which they are made, but distributions are generally taxable.*
The Roth Individual Retirement Account allows you to save for your retirement using only nondeductible contributions and features federal income tax free withdrawals for certain distribution reasons after a five-year holding period. Since Roth IRA contributions are nondeductible and taxed in the year they are earned, if you expect to be in a higher tax bracket when you retire, you may benefit more from a Roth IRA than from a traditional IRA.*
*Eligibility rules apply
SEPs are often established by companies to provide retirement plans for their employees. Every year, the company can contribute a certain percentage of each employee’s eligible pay into his or her individual Traditional IRA. Any company, whether a corporation, partnership or a self-employed individual, may establish a SEP even if there are no other employees.
Every dollar deposited under an eligible SEP plan within the limits listed in the table below qualifies as a tax deduction.
|Tax Year||SEP Plan Employer Contributions|
|2020||The lesser of 25% of the first $285,000 of each eligible employee’s compensation or $57,000|
|2021||The lesser of 25% of the first $290,000 of each eligible employee’s compensation or $58,000|
|2022||The lesser of 25% of the first $305,000 of each eligible employee’s compensation or $61,000|
|Contribution Deadline||Employer’s income tax return filing due date, plus extensions|
For detailed information about SEP and employee eligibility, refer to IRS publication 560, Retirement Plans for Small Businesses, found on the IRS website.
As a business owner, you should consult with your tax or legal professional to review IRS eligibility requirements for this plan for your business.
The earlier you start saving for retirement, the more time your money has the potential to grow. It pays to start savings now and to contribute regularly.
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