Moving your retirement savings from an employer-sponsored 401(k) to an Individual Retirement Account (IRA) is often the result of changing jobs. However, this transition strips away the federal shield of ERISA regulations, exposing your nest egg to hidden costs, aggressive civil lawsuits, and administrative oversights.

True financial security requires understanding these structural gaps — ranging from shifting bankruptcy rules to the vanishing of spousal consent protections — and actively managing your retail accounts, such as IRAs, to replicate the institutional safeguards you left behind. Think your rollover is completely safe? Test your knowledge on how moving your 401(k) into an individual retirement account fundamentally alters your legal rights.

Don't worry if you miss an answer; you can follow the links below the quiz to brush up on your knowledge.

More on IRAs, from the Kiplinger team:

• The $9 Trillion Shift: Why Your Retirement is Less Safe in an IRA and How to Protect It
• Four Reasons to Roll Over Your 401(k) into an IRA (And Four Reasons Not To)
• Is Your IRA Protected from Creditors in Bankruptcy?
• How to Roll Over a 401(k) in Five Steps
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Roth IRA Contribution Limits for 2026

Most of us assume our retirement savings are untouchable, but the law isn't always that simple. Depending on the type of IRA you own and/or how you inherited it, your "safe" money might actually be on the table for creditors. Take this 10-question quiz to see if your hard-earned savings are truly protected — or if you're sitting on a hidden risk.

Don't worry if you miss an answer; you can follow the links below the quiz to brush up on your knowledge.

More on IRAs, from the Kiplinger team:

• Is Your IRA Protected from Creditors in Bankruptcy?
• 6 Changes to IRAs, 401(k)s and HSAs in 2026
• The Average Retirement Savings by Age
• Roth IRAs: What They Are and How They Work
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Roth IRA Contribution Limits for 2026
• SEP IRA Contribution Limits for 2026

Individual Retirement Accounts (IRAs) are the foundation of tax-advantaged retirement savings, offering every worker the chance to build wealth outside of a workplace retirement plan. But knowing whether to choose a Traditional IRA (tax break now) or a Roth IRA (tax-free in retirement) requires understanding the crucial differences in contribution limits, income phase-outs, and withdrawal rules.

This 10-question True/False quiz covers the essential facts you need to maximize your annual contributions and avoid costly mistakes. Don't worry if you miss an answer; you can follow the links below the quiz to brush up on your knowledge.

More on IRAs, from the Kiplinger team:

• 6 Changes to IRAs, 401(k)s and HSAs in 2026
• The Average Retirement Savings by Age
• Roth IRAs: What They Are and How They Work
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Roth IRA Contribution Limits for 2026
• SEP IRA Contribution Limits for 2026

Question: I'm 57 with a great remote job, but after five years of working from home, my company wants me in the office full-time. I don't have the energy for a daily commute. Help!

Answer: In early 2020, many companies implemented remote work policies in response to the pandemic. And a good number of employees have been enjoying a fully remote schedule ever since.

But companies are increasingly asking workers to return to the office. And many are mandating it. CBRE reports that 77% of companies today across the U.S., Canada and Latin America expect employees to report to the office three days a week or more.

If you're 57 and have been working remotely for the past five years, you may feel that you don’t have the energy to start commuting daily. But if your employer wants you back in the office full-time, you may also feel like you don’t have a choice.

It’s hard to start over at a new employer at age 57, since you may be approaching the tail end of your career with plans to coast until retirement. Plus, it may not be so easy to get hired at 57.

Almost two-thirds of workers ages 50 and over have seen or experienced age discrimination in the workplace, according to AARP. It is especially a problem for older women. And while it’s illegal to pass over a qualified job candidate on the basis of age, it’s also a hard thing to prove.

Also, there’s no saying that if you were to apply for a new job, you’d be able to find one that’s fully remote. So all told, you’re looking at a tough situation. But that doesn’t mean there aren’t solutions.

It pays to have an open mind

After five years of remote work, the idea of a daily commute may be jarring. But Suzanne Hawes, a seasoned human resources consultant, says it’s important to have an open mind. If you like your job and the commute is the one sticking point, there may be ways to make it work.

The most important thing, she says, is to give commuting a chance.

“Often, it takes a few weeks to get used to the old routine again,” says Hawes. “If you were able to balance work and life before, it may be possible to find that balance going forward. If the only negative thing about the job is having to be in the office full-time, you might try it for a few months before deciding to leave.”

Diana Bernal, CEO and Career Strategist at Diana Inc, says you may be able to make the most of a commute.

"Use it as a chance to listen to audio books or podcasts," she suggests. And if you don't have to drive, you could read or watch TV and use the commute as an opportunity to enjoy some downtime.

Bernal also points out that if you can afford to do so, there may be ways to make your commute more comfortable.

"When I got a new job downtown that increased my commute, I leased a comfy Lexus, a nice step up from my Honda Accord," she explains.

Or, you may realize that there are benefits to being in the office, such as family, friends, or activities nearby. All told, it may not be so bad once you get used to it.

There may be some wiggle room

If you’re being asked to return to full-time office life, one thing to consider, says Hawes, is that your employer may be more flexible than you’d think.

“One possibility,” she says, “is to comply with the order and come back full-time for a few months. Then, see if your leadership is open to one or two work-from-home days. People who show they are willing to comply with the return-to-office order may find that buys them some flexibility.”

Hawes also says that the more leverage you have at your job, the more your employer may be willing to negotiate.

“If you’re a high performer or in a role that’s hard to replace, your leaders may be more willing to offer you a hybrid arrangement,” she explains.

Consider a new job or go freelance — if it fits your financial plans

If your employer insists on five days a week in the office and it doesn’t work for you, you could always look for a different job. But Hawes warns that it may be tough going.

“Not only is remote work harder to come by now,” she explains, “but in some locations, all jobs are harder to come by. If you’re going to leave your job because of a return-to-office order, either find your next job before you leave this one, or make sure you have enough savings to support a potentially long job search.”

Hawes says that while taking a lower-paying job with more flexibility may be possible, you should work with a financial adviser to understand how prepared you are for retirement now.

“If your planner says you’re in good shape, a lower-paying job may make sense,” she says. “But be clear about what you’re giving up in return for fully remote work. Are you used to a high level of independence and decision-making? Are you prepared for a role with less authority or visibility than you have today?”

Hawes says you can also consider a shift into freelance work if you can’t find a suitable job that will let you work from home. But there are risks involved.

Freelance income can be inconsistent, and it may take time to build up a steady stream of it.

Before going the freelance route, Hawes says, “Talk to people who are doing it and find out what it takes to get work. Ask how they price their services and, if they are willing to share, what they earn in a typical month.”

You’ll also need to consider the benefits you may be giving up by going freelance, such as employer-subsidized healthcare and access to a workplace retirement plan, like a 401(k).

“Many employers contribute to employee plans, often by matching contributions,” Hawes says. “That’s free money you would be giving up.”

The good news is that, as an independent contractor, you can save for retirement through vehicles such as SEP IRAs, Solo 401(k)s, or SIMPLE IRAs. And in some cases, you can contribute more than you could to a 401(k).

But as Hawes warns, “All of those contributions will be coming from you.”

Don’t rush into a decision

You may be tempted to quit your job if you’re forced to resume a five-day commute you’re dreading. But before you do that, Hawes says, it’s important to have a game plan.

“My recommendation would be to go back and approach it as an experiment,” she says. “Give it at least three months and pay attention to how you feel and how the rest of your life is functioning.”

If, after three months, you’re truly unhappy, you can explore other options. But as Hawes says, “If you still want to quit after that, take the time either to find another job that better fits your needs or to save enough money to give yourself a cushion while you build a freelance or consulting practice.”

Read More

• The Seven Best-Paying Side Gigs for Retirees
• Home Office Tax Deductions: Work From Home Write-Offs
• I'm 68 and Health Issues Forced Me to Retire. Should I Claim Social Security or Use My Savings Until I'm 70?
• I'm 51 and My Portfolio Is Up. I'm Planning to Retire at 60 and Want to Start Moving out of Stocks. Is That Smart?

Question: I'm 54 with a $320,000 IRA and am transitioning into self-employment with a projected annual income of $120,000. How much of that can and should I be saving for retirement? What are the best tools for self-employed savers?

Answer: Making the leap from a salaried position to self-employment can be challenging. However, there are also several benefits.

For one thing, being self-employed allows you to work from your location of choice. If you’re 54, you may no longer have the energy to deal with a lengthy commute. As more companies call employees back to the office full-time, transitioning to self-employment could mean getting to work from home and avoiding the hassle of daily commuting.

Or, it may be that you’re moving into self-employment to follow your passion. If you no longer have kids living under your roof and have a solid financial cushion, your mid-50s could be a good time to pursue a line of work you find more rewarding.

If you’re 54 with $320,000 in your IRA, you’re ahead of the game on the retirement savings front compared to the typical American your age. As of the second quarter of 2025, the average IRA balance for savers in their 50s was $129,222.

Still, that doesn’t mean you should necessarily be done saving for retirement. If you were to leave your $320,000 invested at a yearly 8% return until age 67, which is your full retirement age for Social Security, you could end up with around $870,000. That’s a nice-sized nest egg, but you may want more.

Becoming self-employed might make saving for retirement more challenging, at least initially. But it’s important to make it a priority.

Aim to save 15% of your income — once things stabilize

When you’re transitioning into self-employment, you might go through a period of income volatility. It’s okay to pause retirement plan contributions at the onset as long as you commit to starting back up again once your income stabilizes, says Brennan Decima, Founder and Managing Director at Decima Wealth Consulting.

“First, focus on creating six months of cash flow security to give some cushion for your variable income,” he says. “Once that is in place, I suggest to my clients to try and save at least 15% of their income towards retirement.”

Brian Heckert, Founder and Wealth Manager at FSM Wealth, Inc., agrees.

“Having been self-employed for the last 40 years, I have gone from boom to bust with the economy and market cycles,” he says. “Assuming everything is working well, and the $120,000 [annual income] is net of expenses, I would like to see them continue at least as much as they have been saving as an employee — hopefully at least 10-15% of the net income.”

Use the right retirement savings account

Being self-employed gives you more options when it comes to retirement savings plans.

“There are three qualified plan options available for a self-employed person – a Solo 401(k), a SEP IRA, and a SIMPLE IRA,” says Heckert. “All three plans are flexible from year to year, and the contributions can be made up until the tax deadlines.”

If you’re aiming to save 15% of a $120,000 income, or $18,000, all three of these accounts allow for a contribution that large at age 54, Heckert explains.

Decima happens to be a fan of the Solo 401(k) because it gives people “the flexibility of making tax-deductible contributions in years their income is higher, or doing Roth contributions in years where income is low.”

If you’re self-employed and pay yourself a salary, a Solo 401(k) may allow for higher contributions than other retirement plans. However, it’s best to consult a tax professional for advice on your specific situation, as there may be variables to consider outside of your self-employment income.

Make the process automatic

Once you get into a steady income flow, you may want to automate the process of funding a retirement account rather than write your savings a big check at the end of the year.

“It’s really easy to spend money when it comes directly to our bank accounts,” Decima says. “Automating the savings where it goes directly to the 401(k) conditions you to pay yourself first, making it easier to stay on track and reach your future goals."

One thing you may want to consider is automating a baseline contribution each month, and then assessing your net income at the end of each year. If your income allows for more savings, you can always make an additional contribution. But this way, your retirement account will have been funded throughout the year.

Don’t let fear hold you back

If you’ve been a salaried employee for most of your career, giving up the security of a stable paycheck can be daunting. But your 50s are actually a great time to take a chance on yourself, Decima insists.

"I recently left a high-paying job of almost 20 years to start my own company as well,” he explains. “The leap was both revitalizing and intimidating.”

If you end up in a self-employment situation that’s mentally and financially rewarding, it may be something you can continue doing during retirement. That could be a great way to stay busy later in life while boosting your income. In the near term, the key is to give yourself grace with retirement plan contributions initially while you adjust, but then prioritize them as soon as you’re in a good place income-wise.

Read More

• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Home Office Tax Deductions: Work From Home Write-Offs
• I'm 51 and My Portfolio Is Up. I'm Planning to Retire at 60 and Want to Start Moving out of Stocks. Is That Smart?
• I Want to Retire, but I Have to Keep Working so My Adult Kids Have Insurance

Did you max out your 2025 IRA contribution limit? If not, plan carefully to get the most out of your retirement accounts. You still have until April 15, 2026, to make a contribution to your Roth and traditional IRAs for 2025 before you start using your 2026 limit. Read on for 2025 and 2026 contribution limits.

IRAs have become even more valuable tools for retirement savings in the years since employers began moving away from traditional pensions. As companies shifted to defined contribution plans such as 401(k)s, workers needed new ways to save for their future, increasing the importance of savings opportunities outside the scope of employment.

The Employee Retirement Income Security Act of 1974 (ERISA) established the IRA account, and by 1975, workers who had no access to employer-sponsored retirement plans could contribute up to $1,500 per year. Over the years, the number of people eligible to contribute to an IRA has grown, as have the types of IRAs available.

By mid-2023, 55.5 million (or 42.2%) U.S. households reported owning individual retirement accounts (IRAs), according to a 2023 ICI report on The Role of IRAs in US Households’ Saving for Retirement. IRA accounts held $14.5 trillion at the end of June 2025, over one-third of total retirement assets of $40 trillion.

The following tables provide a quick overview of contribution limits, income thresholds, and rollover rules for Roth, traditional, SIMPLE and SEP IRAs. For deeper planning advice and detailed regulations, follow the links provided in each section.

Consider the backdoor Roth option if your income exceeds the limit.

If you earn too much to contribute to a Roth IRA, all may not be lost. You can still access these accounts indirectly through a backdoor Roth IRA.

Creating a backdoor Roth IRA is a two-step process. First, you open a traditional IRA using after-tax dollars instead of the pre-tax money you usually fund these accounts with. Then, you convert the traditional IRA to a Roth, but because none of the contributions were deductible, no income tax is owed on the conversion.

While there are no income limits for setting up a nondeductible IRA or making a Roth conversion, contributions through the back door have the same annual limit in 2025 and 2026. For more information, read Backdoor Roth IRAs: Good for Wealthy Retirees? and get up-to-speed on the pro-rata rule and how to manage withdrawals.

A non-deductible IRA

A non-deductible IRA isn’t a type of retirement account; it refers to nondeductible contributions that you make to a traditional IRA. It’s a retirement savings strategy for those whose income exceeds the limits to make deductible IRA contributions or to contribute to a Roth IRA. You will need to file a Form 8606 for every year you made nondeductible IRA contributions

But be aware that making nondeductible contributions to a traditional IRA will complicate your life when it comes time to withdraw funds from your IRA. Why? Because each withdrawal from that traditional IRA will be a combination of your nondeductible contributions, your tax-deductible contributions and all their earnings. And as you take distributions, the ratio will change. How to Calculate Tax-Free and Taxable IRA Withdrawals can give you a clearer picture of how the process works.

SEP Plan criteria for eligible employees and contribution limits

Requirement for equal contributions. SEP plans provide some flexibility to employer owners when cash flow is tight. There's no requirement or obligation for the business owner to make contributions each year, but when they do the percentage of income contributed to a SEP IRA must be the same across all eligible employees, including the owner.

Eligibility to contribute to a SEP IRA. Unlike other retirement plans, there are specific criteria for being eligible to have a SEP IRA as an employee.

You must:

• Be age 21 or older
• Meet the 3-of-5 rule, meaning you've been employed full time by the company for any period of time during at least 3 of the last 5 year
• Earn the minimum annual compensation from the SEP IRA-sponsoring employer. For 2026 that is $800 and $750 for 2025.

A company may exclude the following from its SEP IRA:

• Employees that are covered by a union collective bargaining agreement for retirement benefits
• Employees who are not U.S. residents and do not receive US wages.

SIMPLE Employer (Mandatory) Contribution Limits

SIMPLE IRAs operate differently than other IRAs. And it's important to note that employees cannot make SIMPLE IRA contributions on their own behalf. SEP IRA contributions are made by the employer/business owner rather than by individuals/employees, and contribution amounts are determined by the business, subject to IRS limits.

Another unique feature of a SIMPLE IRA plan is that the percentage of income contributed by an employer/owner to a SIMPLE IRA must be the same for all eligible employees, including the owner. For the 2025 tax year, the deadline to contribute to a SIMPLE IRA is April 15, 2026, or the business's tax filing deadline, including extensions up to October 15, 2026.

An employer must contribute to a plan and can choose either of the following SIMPLE IRA employer match rules:

• Make a non-elective contribution of at least 2% of compensation for all eligible employees. You may limit these non-elective contributions to eligible employees earning at least $5,000, although you do not have to do so. Maximum compensation for 2026 is $360,000 and $350,000 for the 2025 tax year.
• Make a matching contribution of 100% up to the first 3% of compensation.  Employees only get this matching contribution if they contribute to the plan.
• Allow additional nonelective contributions to SIMPLE IRA plans. Section 116 of the SECURE Act 2.0 allows employers to make additional contributions to their employees “in a uniform manner,” as long as the contribution does not exceed either up to 10 percent of compensation or $5,000, whichever is less.

SIMPLE IRA deadlines

SIMPLE IRAs have set-up deadlines and contribution deadlines.

Setup deadline: A plan cannot have an effective date later than October 1 for current-year contributions.

Contribution deadline: Employers must make contributions by the business's tax-filing deadline. They must deposit salary deferral contributions from employees no later than 30 business days after the end of the month they were deferred.

Employers are required to make annual contributions to a SIMPLE IRA plan. At minimum, an employer must either match employee contributions, up to 3% of compensation (and no less than 1%), or contribute up to 2% of compensation for all eligible employees, regardless of whether the employee contributes.

Here are some important rules and limitations about rollovers:

Number of rollovers: the once-per-year rollover rule. You can only make one 60-day indirect rollover, where you receive a check from an IRA and deposit it into another IRA within 60 days, from all of your IRAs (including Traditional, Roth, SEP, and SIMPLE IRAs) within a 12-month period.

Three exceptions to the once-per-year rollover rule. This rule doesn't apply to: (1) trustee-to-trustee transfers — direct transfers of funds between IRA custodians, (2) rollovers to/from qualified plan — rollovers from or to 401(k)s, 403(b)s, etc. and (3) Roth conversions — converting a Traditional IRA to a Roth IRA.

Rollovers from pre-tax accounts to a Roth IRA. If you rollover funds from a traditional, SIMPLE or SEP IRA to a Roth IRA, you will have to include the rollover amount on your tax return and pay income taxes.

Limitations on rollover to SIMPLE IRAs. Rollovers into a SIMPLE IRA from traditional and SEP IRAs, as well as employer-sponsored retirement plans, applies only to contributions made after December 18, 2015. Contributions made prior to that date are ineligible to rollover into a SIMPLE IRA.

Related Content

• 6 Changes to IRAs, 401(k)s and HSAs in 2026
• Roth IRA Contribution Limits for 2026
• SEP IRA Contribution Limits for 2026
• SIMPLE IRA: What It Is and How It Works
• SIMPLE IRA Contribution Limits for 2026
• Qualify for Roth IRA Contributions by Lowering Your Income

Are you considering investing in crypto in your retirement account? These days, you're not alone. The surge in interest in cryptocurrency and the changing regulatory landscape will likely have a major impact on retirement planning.

Donald Trump's presidential win marked a turning point in cryptocurrency regulation. His choice of Paul Atkins, a well-known regulatory skeptic and co-chair of the crypto lobbying group Token Alliance to lead the SEC (Securities and Exchange Commission) signals a pivot toward a more crypto-friendly framework.

Adding fuel to the fire, Trump has floated bold policy ideas. This has included the creation of a “Strategic Bitcoin Reserve” and a proposal to exempt capital gains taxes on cryptocurrency, according to The Street.

Meanwhile, Wall Street has ramped up its embrace of crypto with Bitcoin and crypto ETFs and other products. Industry giants like Fidelity, Schwab, and BlackRock are leading the charge. A major catalyst for this enthusiasm has been the rise of spot Bitcoin ETFs (exchange-traded funds), which have made it much easier to invest in crypto.

In light of these trends, cryptocurrency may become a staple in retirement accounts. While the potential for growth is attractive, investors must weigh the risks with their financial goals.

How to invest in crypto in your retirement account

There are two ways to get exposure to crypto in a retirement account.

First, there is the indirect approach. This is when you invest in a publicly traded security like a spot Bitcoin ETF. This is available with traditional IRAs, Roth IRAs and even some 401(k)s.

Next, there is the direct approach, in which you purchase cryptocurrencies within your retirement account. This involves working with a platform designed for such investments, like Alto’s CryptoIRA, which supports over 200 cryptocurrencies, including Bitcoin, Cardano and Polygon. Some providers also offer cold storage options, where your digital assets are stored offline in hardware wallets. This can provide an extra layer of security against online threats.

Direct investing requires setting up a self-directed IRA. However, not all IRA providers offer this level of flexibility for crypto investments. In addition to Alto CryptoIRA, platforms like iTrustCapital, BitcoinIRA, and Coin IRA are players in this space.

Keep in mind that you cannot fund an IRA with cryptocurrency directly. Contributions must be made in cash or rolled over from an existing retirement account.

You also need to be careful about the costs. “There are three basic costs of a crypto IRA,” said Mark Parthemer, the chief wealth strategist and Florida regional director at Glenmede. “There are setup and recurring account maintenance fees, transaction fees or commissions, and investment expenses, such as a mutual fund’s internal costs. Some crypto IRA firms have been criticized for significant fees. My advice in this area — know before you buy. Read the fine print, and compare the total fees and costs.”

The benefits of crypto

To understand the potential benefits of cryptocurrency, it’s important to know how it is structured. Cryptocurrencies are stored on a blockchain, which is a sophisticated database that records transactions in a decentralized manner. This decentralization eliminates the need for third-party verification, such as governments or financial institutions. Each block of transactions in the blockchain is linked to the previous one through a cryptographic hash. Transactions are validated using consensus mechanisms like proof-of-work or proof-of-stake, which maintain the integrity of the network and make it difficult to hack or manipulate.

Transparency. A key advantage of blockchain technology is its transparency. All transactions are visible to participants. This transparency has helped build confidence in cryptocurrencies and their applications. For instance, Bitcoin, the most well-known cryptocurrency, has reached a market value of nearly $2 trillion.

Cost. Cryptocurrencies also offer efficiency and cost advantages for monetary transactions. Being inherently digital, they bypass traditional financial systems, allowing for faster and cheaper transfers. This is especially the case for international payments.

Scarcity. Beyond transactional uses, cryptocurrencies like Bitcoin have become a popular investment asset. In 2024, Bitcoin nearly doubled in value. Bitcoin’s capped supply of 21 million coins creates scarcity, adding to its value proposition.

Diversification is another advantage. “Crypto is different from any other asset class and can reduce portfolio volatility and enhance long-term returns by spreading risk across different asset classes,” said Eric Satz, the CEO and founder at Alto.

The downsides of crypto

Any new type of asset class should come with a "buyer beware" warning, but that is especially true in this case.

Volatility. Crypto is still an emerging asset class, its origins dating from 2008 when Bitcoin was launched. Over this period, it has been a rollercoaster of volatility. In the case of Bitcoin, it has suffered eight 50% corrections, according to Caleb & Brown. Bitcoin and other cryptocurrencies rely heavily on speculation and leveraging.

The crypto market can be sensitive to swings in investor sentiment. This can be exaggerated with the relatively low amount of liquidity in the global market, at about $3.59 trillion versus $50.65 trillion for the S&P 500.

Regulatory risk. While it's true that Trump has signaled strong regulatory support for crypto, it's not in place yet and it is unclear what form it will take. There are very few 401(k) accounts currently investing in crypto, according to a report by the Government Accountability Office (GAO). However, the report notes that "federal regulatory gaps GAO identified in June 2023 remain unaddressed. As a result, certain crypto assets continue to trade in markets that do not have investor protections or comprehensive oversight."

Fraud. Crypto has also been susceptible to fraud and scams. In 2023, the FBI's Internet Crime Complaint Center received over 69,000 complaints related to cryptocurrency fraud. The losses exceeded $5.6 billion, up 45% from the previous year.

Disruption. Another issue is the potential disruption of new technologies. After all, innovations — say those powered by AI or even quantum computing — may make blockchain systems obsolete. This could devastate the valuations of existing cryptocurrencies.

Environmental risk. Cryptocurrencies that rely on proof-of-work mining require massive amounts of computing power, all of which must be fed electricity and cooled. While many investors may be aware of the large energy consumption involved, few know of the water impact. Each Bitcoin transaction requires about as much water as one backyard swimming pool.

Bottom line

Given the risks, it’s important to be prudent with crypto. Research from BlackRock considers up to 2% of a portfolio invested in Bitcoin as “reasonable.”

“If it went to zero and you were in BlackRock’s range for allocation, you likely would not permanently harm your portfolio outcome,” said Brian Spinelli, a CFP and co-chief investment officer at Halbert Hargrove. “The stocks alone may have days where they move the portfolio around by more than 1%. If your stock allocation is all S&P 500, you have more dependency on Nvidia’s outcome right now than you would with a small allocation to Bitcoin.”

Still, your retirement portfolio may need to last a long time, and 2% might even be too much to speculate on crypto. Before those shiny coins tempt you, seek out a financial adviser for guidance.

Read More

• What Cryptocurrency – Including Bitcoin – Is and How It Works
• Six Ways Trump Could Change Your Retirement
• Retirement Calculator: How Much Do I Need to Retire?
• Average Net Worth by Age: How Do You Measure Up?

IRAs (Individual Retirement Accounts) are certainly popular. According to research from the Investment Company Institute (ICI), about 55.5 million US households owned these accounts. There are a few reasons why so many investors favor IRAs, but chief among them is that an IRA provides valuable tax benefits, which can boost your nest egg. ICC estimates that – for those who have held their IRAs for at least ten years – the average balance is $280,000.

It's important to understand how to use these powerful savings tools. And you will need to decide which type is best for you: traditional, Roth, SEP or SIMPLE?

What is an IRA?

An IRA is not an investment. Rather, an IRA is an account that holds investments, such as stocks, bonds, mutual funds and ETFs (exchange-traded funds). Some accounts even allow investing in real estate, though the IRS prohibits certain types of assets like collectibles.

“For those without access to a retirement savings plan through their employer, an IRA is the perfect way to benefit from tax-advantaged savings that would otherwise be inaccessible,” said Michelle Riiska, who is a ChfC and planning consultant at eMoney Advisor, the second largest wealth management platform in the US.

There are two types of IRAs for individuals: traditional IRAs and Roth IRAs. There are also plans available for those who are self-employed or own small businesses.

How an IRA works

For traditional IRAs and Roth IRAs, the contribution limit for 2024 and 2025 is $7,000. If you are 50 or older, you can make a “catch-up” contribution of $1,000. You can make contributions for the current year by the tax filing deadline of the following year, which is typically April 15th.

But you can only make contributions with earned income. Earned income includes wages, salaries, tips, bonuses, commissions and net earnings self-employment income. But it does not include items like interest, capital gains, rental income, dividends, pensions, unemployment compensation and annuities.

There is an exception if you have a non-working spouse and file jointly. For example, suppose you have earned income of $60,000 and your spouse has no income. You can set up an IRA for $7,000 for yourself and a separate, spousal IRA of $7,000 for your partner. However, if your income was lower than the combined contribution of $14,000, then you can only allocate the amount up to your annual income.

Once you've settled on an IRA, your next decision will be whether to get a Roth IRA or a Traditional IRA.

Traditional IRA

If you or your spouse do not have an employer retirement account — like a 401(k) plan — you can make tax-deductible contributions to a traditional IRA. Otherwise, the deduction is phased out based on your income. But you can still make nondeductible contributions.

On the earnings of your IRA, the taxes are deferred until you make withdrawals. If you do not do this before reaching age 59 ½, you will pay income taxes on the amount and a 10% penalty. But there are exceptions, such as:

• Total and permanent disability
• Health insurance premiums while unemployed
• Unreimbursed medical expenses
• Expenses for higher education
• First-time home purchases up to $10,000

Let’s take an example of how the taxes work with a traditional IRA. You have an annual income of $80,000 and make a $7,000 contribution. This lowers your taxable income to $73,000, which means you get a $1,540 tax savings (22% of $7,000). For the year, the capital gains and dividends are $400, which is not taxable. This gives you an additional savings of $88.

A traditional IRA is subject to required minimum distributions (RMDs), meaning you need to withdraw a small percentage of the account each year. Owners of traditional IRA accounts must start taking RMDs when they reach age 72 (73 if you are age 72 after Dec. 31, 2022). Due to the SECURE 2.0 Act, the RMD age will rise again to 75 in 2033. This RMD rule applies even if you are retired. If you do not make the distributions when required, the penalty is 25%.

Roth IRA

You cannot deduct your contributions to your Roth IRA, but the taxes on the earnings in the account are deferred until they are withdrawn.

So, what’s the advantage of a Roth IRA? You can take out the contributions in your account tax-free without penalty. As for the earnings, they are also tax-free if you make the withdrawals when you are 59 ½ or older and have held the Roth IRA for at least five years.

However, there are restrictions on your contributions. The amount is phased out based on your modified adjusted gross income (MAGI). For example, if you are single or file jointly, then the phaseout period begins at $146,000 and $230,000 for 2024. For 2025, the phaseout begins at $150,000 and $236,000 respectively. If you are bumping up against those income levels, you can still qualify for Roth IRA contributions by lowering your income. Several strategies, like contributing to a Health Savings Account (HSA), can lower your MAGI and set you up for a more secure retirement.

A Roth IRA can be beneficial if you expect to be in a higher tax bracket. But there are other benefits. For example, there are no RMDs and you can pass your account tax-free to your heirs.

“The choice of contributing to a traditional IRA and Roth IRA is not all or nothing,” said Rob Williams, managing director of financial planning at Charles Schwab. “We suggest that investors consider contributing to both, dividing the amount half and half, or in a proportion that meets your current needs, budget, and preference for more flexibility and less tax for when you reach retirement.”

Spousal IRA

Spousal IRAs not only give a nonworking spouse a measure of retirement security, but the contributions allow the couple to save more for retirement on a tax-advantaged basis and reduce tax liability.

If one spouse has earned income and the couple files a joint tax return, the working spouse can contribute to an IRA in the non-working spouse’s name. Spousal IRAs are an ideal way for spouses who plan to take time out of the workforce to continue to save for retirement.

The total contribution to a spousal IRA can’t exceed the taxable income reported on the couple’s joint federal tax return. Regardless of who contributes to the account, the account is owned by the nonworking spouse, and it is theirs to keep, even if the marriage ends in divorce.

Rollovers and conversions

A "rollover" refers to moving funds from one type of retirement account to another, usually tax-free. If you have a 401(k), you may want to roll over the account into an IRA when you leave your job or retire. Some employers allow this type of rollover when you reach 59-½ and remain an employee.

There are key advantages to a rollover compared to cashing out of your 401(k). A rollover allows you to continue to benefit from the tax deferral of the IRA, which will help you build your retirement nest egg.

Your IRA will have many more investment options, and the fees may also be lower.

Keep in mind that there are two types of rollovers:

Direct Rollover: The plan administrator of the 401(k) transfers the amount in the account directly to the IRA. This method is straightforward and avoids potential tax issues.

Indirect Rollover: You receive the funds from your 401(k) and then have 60 days to deposit them into an IRA. Otherwise, the amount will be subject to income taxes and a 10% penalty if you are younger than 59-½. Your employer may also withhold 20% in taxes. While you can reclaim this withheld amount when you file your taxes, it can be a hassle. Due to these issues, it’s usually best to use a direct rollover.

You can also roll over your 401(k) into a Roth IRA. However, the IRS considers this a conversion. That's because the regular 401(k) defers taxes, while a Roth IRA does not. This means you will owe income taxes on the amount of the distribution, which could be significant.

You may also convert a traditional IRA into a Roth IRA.

IRAs for the self-employed and small businesses

SEP IRA. A SEP IRA (Simplified Employee Pension Individual Retirement Account) is for someone who is self-employed or has a small business. The owner is the only one who can make contributions to the account. They will also be required to make contributions for employees who are at least 21 years old, have worked for the business for at least three of the last five years and have received a minimum of $750 income in 2024. Because of this, the owner will usually have a SEP if there are few or no employees.

The main advantage of a SEP IRA is that you can contribute up to 25% of compensation, with a maximum of $70,000. These contributions are tax deductible and the earnings are deferred from taxes. However, there is no catch-up contribution for older workers.

SIMPLE IRA. If your business has employees, a better option is the SIMPLE IRA (Savings Incentive Match Plan for Employees). In fact, this can be a great way to recruit and retain employees. Moreover, when compared to a 401(k), there is generally less paperwork and lower costs.

With this type of account, each employee will have their own account and the contribution limit is $16,500 for 2024 and $16,500 in 2025. If the employee is age 50 or older, then there is a catch-up contribution limit of $3,500 for 2024 and 2025.

Beginning in 2025, there will be an increase in the catch-up contribution limits for participants who have reached ages 60 through 63. The new catch-up contribution limit will increase to the greater of $5,000 or 150% of the regular age 50 catch-up contribution limit for SIMPLE IRA plans in 2025. Those who are 60, 61, 62, or 63 can contribute $5,250 more to SIMPLE plans for 2025.Cost of living adjustments will begin in 2026.

However, an employer is required to make contributions on behalf of employees. This is either a dollar-for-dollar match of up to 3% of compensation or a flat rate of 2% of compensation, which is capped at $350,000.

For both a SEP IRA and a SIMPLE IRA, you will pay taxes on the withdrawals from the account. There is a 10% penalty if this is done before reaching age 59-½. As for a SIMPLE IRA, the penalty is 25% if the withdrawal was completed within two years of participation in the plan.

Read More

• Should You Use a Roth or Traditional IRA?
• SEP IRA vs. Solo 401(k): Which Is Better?
• Traditional IRA Basics: 10 Things You Must Know
• The Average 401(k) Balance by Age

Traditional IRA withdrawals can push more of your Social Security into the taxable zone, up to 85%, which can add up over time. That's why it's important to get smart about when and how you pull money from your traditional IRA, helping you keep thousands more in your pocket every year.

Pairing Social Security with your IRA is one of the best ways to power your retirement, but skip the tax surprise. Done right, it’s a powerful income strategy — done wrong, it can quietly eat a big chunk of your retirement cash.

Let’s take a deeper look at how IRAs impact your Social Security.

How IRAs impact Social Security: Taxes on Social Security benefits

As much as 85% of your Social Security benefits are subject to federal income taxes. This is based on your “combined income,” or your adjusted gross income (AGI) plus nontaxable interest and half your annual Social Security benefits. You will include your spouse's combined income if you file jointly.

As for the AGI, it includes wages, interest, investment income and distributions from traditional 401(k)s and IRAs. You can then make adjustments, such as for a health savings account (HSA) and other calculations that might change your AGI.

Here's a look at the taxes due on Social Security benefits for individuals and couples filing jointly.

• If your combined income is under $25,000 (single) or $32,000 (married filing jointly), your Social Security benefits are not taxed.
• For combined income between $25,000 and $34,000 (single) or between $32,000 and $44,000 (married filing jointly), up to 50% of your benefits might be taxed.
• For combined income above $34,000 (single) or above $44,000 (married filing jointly), up to 85% of your benefits might be taxed.

Suppose you and your spouse are retired. Your combined Social Security benefits are $35,000, and you take an IRA distribution of $35,000.

Half the Social Security benefits total $17,500, which you then add to the IRA distribution for a total of $52,500 in combined taxable income.

However, while this amount is above the threshold for being taxed at as much as 85% of the benefits, this does not necessarily mean you will pay at this level. This is the maximum.

You can use Worksheet 1 from the IRS to calculate your taxable benefits. But this is a complex area, and it's a good idea to seek the help of a tax expert or use tax software.

However, if you hadn't taken an IRA distribution, the Social Security benefits would have been tax-free.

How IRA withdrawals trigger Medicare surprises

Another issue with an IRA withdrawal is that it can push you into a higher Medicare Income-Related Monthly Adjustment Amount (IRMAA) bracket.

“This increases your Medicare premium,” said Marcus Holzberg, a certified financial planner™ at Holzberg Wealth Management. “Since Medicare is deducted from your Social Security check, this will inadvertently reduce your Social Security benefits.”

Traditional IRA withdrawals, including required minimum distributions (RMDs), count as taxable income, which raises your Modified Adjusted Gross Income (MAGI). That's important to understand because Medicare uses your MAGI from two years earlier to determine whether you owe an income-related monthly adjustment amount, or IRMAA, surcharge on top of your standard Part B and Part D premiums.

For example, IRMAA kicks in for singles with MAGI above $109,000, or $218,000 for married couples filing jointly, in 2026. Making a large IRA withdrawal in a given year can easily push you over these thresholds, triggering higher monthly premiums that apply for the entire following year. Even a $1 bracket change can add hundreds or thousands of dollars annually in surcharges, with couples possibly facing double the impact.

Generally, qualified Roth IRA withdrawals do not count toward your MAGI, which is one reason many retirees use Roth conversions in lower-income years to manage future IRMAAs.

Do IRA withdrawals count as income for Social Security?

Despite what you might have heard, the Social Security Administration doesn't count IRA distributions as earned income when determining Social Security payments. The same goes for pension payments, annuities or interests and dividends from savings and investments.

None of that will lower your monthly benefits, although it can cause a taxable event if your AGI increases as a result.

Required minimum distributions (RMDs)

To avoid taxes on your Social Security benefits, you can defer taking distributions from your IRA. The added benefit is that your money can grow over time.

But there is a limitation: required minimum distributions (RMDs). This is when you must make withdrawals from your traditional IRA or other pre-tax retirement accounts such as a Simple IRA, SEP IRA, 401(k) or 403(b). The amount is considered income for the taxes on your Social Security benefits.

RMDs are triggered based on your age — 73 if you were born between 1951 and 1959, jumping to 75 if you were born in 1960 or later. The amount of the withdrawal is based on an IRS calculation, which includes the account balance and your life expectancy. If you don't make the distribution, you'll be subject to paying income taxes and a 25% penalty.

One way to handle the impact of RMDs is by taking a qualified charitable distribution (QCD). “This allows you to use distributions from your IRA to contribute directly to qualified charities,” said Holzberg. “In doing this, the IRA distribution is not included in your income, thereby lowering your AGI.”

On the other hand, you can delay when you claim Social Security benefits. You can wait until age 70. For every year you delay receiving the benefits, your annual payment increases by about 8%.

Traditional vs Roth IRAs: Which one is better on your Social Security check?

When it comes to tapping into your retirement income, the type of IRA you have can affect how much of your Social Security benefits are subject to federal taxes.

Traditional IRAs let you deduct contributions upfront, but withdrawals count as ordinary taxable income. That extra income boosts your combined income — your adjusted gross income plus nontaxable interest, plus half your Social Security benefits — which can push you over the thresholds where up to 85% of your benefits get taxed federally.

Roth IRAs offer a clear advantage because contributions are made with after-tax dollars, and qualified withdrawals are tax-free and do not increase your adjusted gross income (AGI).

As a result, these distributions are excluded when calculating your combined income, so they don't affect whether your Social Security benefits are subject to federal income tax. That's a big advantage. This also helps prevent your benefits from being pushed into the 50% or 85% taxable range, avoiding any unexpected tax liability from those withdrawals.

IRAs and Social Security

At the end of the day, the way you manage your IRA can either protect or erode the after-tax value of your Social Security benefits. The key is planning rather than reacting later.

That might mean making Roth conversions during lower-income years, spacing out traditional withdrawals to stay below the tax threshold, or aligning distributions around RMDs. The small steps you take today can make a meaningful difference in how much you have on hand in retirement.

Tax rules and your personal circumstances can vary. Consult with a financial adviser or tax professional to run your specific numbers and maximize what you actually keep. That way, you can enjoy your retirement with fewer surprises.

Read More

• Traditional IRA Basics: 10 Things to Know to Build Wealth
• The 'Take That, Uncle Sam' Rule of Retirement Spending
• 10 Reasons to Leave Your Heirs a Roth IRA
• Tending to Your Estate Plan This Spring? Don't Forget to Give Your IRA Some Love
• Inherited an IRA? Key Distribution Rules to Know

It's great being your own boss — until you have to wade through the alphabet soup of SEP IRAs and other retirement plans. Whether you're a full-fledged small-business owner, have a side hustle or receive 1099's as a freelancer or gig worker, there are several smart ways to save for retirement specifically designed for the self-employed.

Here's a comparison of two popular self-employed retirement savings plans: the solo 401(k) and the SEP IRA. See which option is right for your business and retirement planning needs.

SEP IRAs: What is a SEP IRA and how much can you contribute?

A Simplified Employee Pension IRA (SEP IRA) is a retirement account for anyone who is self-employed, owns a business or earns freelance income. A big advantage for small businesses is the low overhead; SEP IRAs do not have the same start-up and operating costs as a conventional retirement plan.

SEP IRAs are available for a variety of small-business types, including sole proprietorships, partnerships, limited liability companies, S corporations and C corporations. You don’t even technically need to have an established business to open a SEP IRA. Anyone who has self-employed income can open a SEP IRA, including freelancers and gig workers who aren’t considered employees.

Who can contribute: An eligible employee, including a self-employed person, is an individual who meets all the following requirements:

• Has reached age 21
• Has worked for the employer in at least three of the last five years
• Has received at least $750 in compensation

The rules for 2025:

Maximum Contribution: The maximum amount an employer or self-employed person can contribute to a SEP IRA for 2025 is the lesser of $70,000, or up to 25% of compensation or net self-employment earnings, with a $350,000 limit on compensation that can be used to factor the contribution

Contribution deadline: Contributions must be made by the tax filing deadline or extension of the employer's return

Tax treatment. Contributions are tax-deductible, including those made to employee accounts. You can deduct the lesser of your contributions or 25% of compensation, subject to the compensation cap ($350,000 in 2025). If you’re self-employed, your deduction is capped at 25% of your net self-employment income.

How to open a SEP IRA: A SEP IRA can be opened at many online brokers. You can set up a SEP for a year as late as the due date (including extensions) of your business income tax return for the year you want to establish the plan. You can establish and fund a plan for tax year 2025 up until your income tax filing deadline including extensions

Calculating contribution limits for a SEP IRA plan

If the IRS considers the employees eligible to participate in the plan, an employer must contribute on their behalf, and those contributions must be an equal percentage of compensation to their own. This rule requiring equal contributions as a percentage of compensation is why a SEP IRA is generally best for self-employed people or small-business owners with few or no employees.

For 2025, employer contributions to an employee's SEP-IRA cannot exceed the lesser of $70,000 or 25% of the employee's compensation or net self-employment earnings, with a $350,000 limit on compensation that can be used to factor in the contribution. In this context, net self-employment income is net profit less half of your self-employment taxes paid and your SEP contribution.

Elective salary deferrals and catch-up contributions are not permitted in SEP plans.

Solo 401(k): What is a solo 401(k) and how much can you contribute? 

One may be the loneliest number, but it can pay off with a solo 401(k); it is similar to a standard 401(k) except that you are the only person in the plan, with some exceptions.

A one-participant 401(k) plan is sometimes called a solo 401(k), solo-k, uni-k or a one-participant k. This plan isn't new and it has the same rules and requirements as any other 401(k) plan. What is different is that this 401(k) plan covers a business owner with no employees, or that person and his/her spouse.

Who can contribute: A self-employed business owner with no employees or a gig worker participating in an employer’s 401(k) who also has a side business.

Maximum Contribution: The maximum amount a self-employed individual can contribute to a solo 401(k) for is $70,000 for 2025 and individuals 50 and older can add an extra $7,500 per year in "catch-up" contributions, bringing the total to $77,500 in 2025. Whether you're permitted to contribute the maximum, though, will be determined by your self-employment income.

In 2025, people ages 60 to 63 have a higher or 'super' catch-up contribution limit of $11,250 bringing the possible maximum contribution to $81,250

Contribution deadline: Contributions must be made by the tax filing deadline or extension of the employer's return

How to open a solo 401(k): A solo 401(k) can be opened through most online brokers and requires a valid Employer Identification Number (EIN). Once the plan balance is $250,000 or more, you must file an annual report on Form 5500-SF with the IRS at the end of a given year.

Calculating contribution limits in a one-participant 401(k) plan

Business owners can legally 'double-dip' and make contributions as an employee and employer to a solo 401(k) plan. The owner can contribute both elective deferrals and the employee nonelective contribution to their solo 401(k).

• Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit of $23,500 in 2025.
• Employer nonelective contributions up to 25% of compensation as defined by the plan, or for self-employed individuals up to 25% of net earnings.

Computing the limit for nonelective contributions is simple. When figuring the contribution limit, compensation is your “earned income,” which is defined as net earnings from self-employment after deducting both one-half of your self-employment tax and contributions for yourself.

The limit on compensation that can be used to factor your contribution is $350,000 in 2025.

SEP IRA vs. solo 401(k) — which is better?

At first glance, these plans may seem similar. But dig down into the weeds, and you'll find differences that could add up over the years. The solo 401(k) plan might be a better fit for side hustlers or part-time gig workers since you can borrow from the plan if you get in a jam, you can save at a faster rate, and you can invest in a company's 401(k) plan if you also have a regular job. On the other hand, if there's any possibility you might hire an employee, a SEP IRA is a better bet.

Why a SEP IRA may be the better choice:

Easier to administer: SEP IRAs have the same contribution limits but no annual reporting to the IRS.

Flexibility: You don't have to commit to contributing every year. You can reduce contributions in lean years and increase contributions when profits are up.

Optional Roth feature is allowed. The Secure Act 2.0 allows employers to offer a Roth feature but is not required to do so. You are now able to designate Roth treatment to SEP contributions. This change is recent and there are still many issues that need clarification.

Why a solo 401(k) may be the better choice:

Self-employed people may be able to save more in a solo 401(k) than they can in a SEP IRA. Solo 401(k)s let you make both employee and employer contributions, meaning you can contribute up to $23,500 for 2025 ($31,000 in 2025) as an employee, even if that is 100% of your self-employed earnings for the year, and you can also contribute 20% of your net self-employment income. Your total contributions can't exceed your self-employment income for the year, up to a total of $70,000 for both types of contributions or $77,500 if age 50 or older in 2025.

In 2025, people ages 60 to 63 have a higher catch-up contribution limit of $11,250 bringing the possible maximum contribution to $81,250.

Maximize your savings opportunities: If you work for a company with a retirement plan and have a freelance income, contribute to both. But keep in mind that if you’re side-gigging, employee 401(k) limits apply by person, rather than by plan. That means if you’re also participating in a 401(k) at your day job, the limit applies to contributions across all plans, not each individual plan.

Tax advantages: You can opt for the traditional 401(k), and take a deduction for contributions and reduce your income. The alternative is the Roth solo 401(k), which offers no initial tax break but allows you to take distributions in retirement tax-free.

Choosing between a traditional or Roth solo 401(k) is part guess work. In general, a Roth is a better option if you expect your income to be higher in retirement and/or you expect tax liability to be higher in the future. You should take the deduction now if you think your income will go down in retirement, or you expect tax liabilities to remain the same or lower.

Don't forget to factor in how your income in retirement will impact if you are subject to the income related monthly adjustment amount (IRMAA) for Medicare Parts B and D. Distributions from Roth accounts are generally not considered taxable income and don't affect your IRMAA liability.

Spousal exception to the no employee rule: A spouse can be added to the solo 401k plan whether they act as a W-2 employee, or an owner in the business. This effectively doubles your solo 401k contribution limits for your household. Your spouse can either open their own solo 401k plan separate from yours, or get added to your existing plan with separate bank and brokerage accounts.

Weighing your options

You can't go wrong investing in a SEP IRA or solo 401(k). They both offer tax-deferred growth and an opportunity to make Roth contributions. Contribution limits for both types of accounts are generous and neither creates a large administrative burden.

The solo 401(k) would be my choice if I had no employees. The ability to make catch-up contributions gives this account a higher contribution limit and you can add your spouse, if their participation meets IRS requirements, and double your maximum contributions.

A SEP IRA has many of the great features of a solo 401(k) and allows employees to participate making it a great option for small business owners. The ability to lower or forgo contributions when profits are down gives an employer more flexibility to respond to market conditions.

Related Content

• The Average 401(k) Balance by Age
• SEP IRA Contribution Limits for 2024 and 2025
• Higher IRA and 401(k) Contribution Limits for 2024
• IRA and 401(k) Contribution Limit Changes for 2025: What to Know
• The Problem With 401(k) Catch-Up Contributions for 2024

Self-employed workers and small-business owners who want an easy and inexpensive retirement plan should consider a Simplified Employee Pension IRA, or SEP IRA. SEP IRA plans are easier to establish than other retirement plans and typically have lower administrative costs.

The main advantage of a SEP IRA is that you can contribute up to 25% of your compensation, with a maximum of $72,000 in 2026, per the IRS. These contributions are tax-deductible, and the earnings are tax-deferred. However, one key drawback is that there are no catch-up contributions for older workers.

What is a SEP IRA?

A SEP IRA is a retirement account for anyone self-employed, owns a business, or earns freelance income. SEP IRAs are available for a variety of small-business types, including sole proprietorships, partnerships, limited liability companies, S corporations and C corporations. The plans can be an especially attractive option for a small business with few employees.

You don’t even technically need to have an established business to open a SEP IRA. Anyone who has self-employed income can open a SEP IRA, including freelancers and gig workers who aren’t considered employees.

Unlike some other retirement plans, a SEP IRA is created primarily as a vehicle for employer contributions, and not payroll deductions. Employers may make contributions to SEP IRA accounts subject to the limit of traditional IRA contributions. Unlike 401(k) plans, the funds in a SEP IRA cannot be used as collateral for loans. But, as soon as a contribution is made to a SEP IRA, the money is considered 100% vested and owned by the employee.

To be eligible to participate in an employer's SEP IRA, the IRS says employees must be at least 21 years old, have worked at the business for three of the past five years, and have earned at least $800 from the job in 2026. Employers may, however, set less restrictive eligibility rules. For example, they may enroll newly hired employees. But the rules must uniformly apply to all employees.

Employers may exclude employees from their SEP IRA plan if the employees are part of a union agreement that includes retirement benefits. They also may bar nonresident alien employees who do not have U.S. wages, salaries or other personal services compensation from the employer.

2026 SEP IRA contribution limits

For 2026, a self-employed business owner can contribute up to $72,000 to a SEP IRA (an increase of $2,000 from 2025), but no more than 25% of their compensation. In comparison, a traditional or Roth IRA allows only $7,500 (up from $7,000 in 2025) for those under age 50, or $8,600 (up from $8,000) for those age 50 or older, thanks to the $1,100 catch-up contribution in 2026. SEP IRA contributions for the 2026 tax year can be made as late as your business tax filing deadline (including extensions), often as far out as September or October 2027 for many self-employed filers, which is more flexible than the April 15, 2027, deadline for traditional and Roth IRA contributions.

Like other individual retirement accounts, contributions are tax-deductible. But contribution rates are required to be uniform for all employees of a company that has a SEP IRA plan, including the owner. So while these plans offer small business owners an opportunity to save much more for their own retirement than they could with a traditional IRA, they have to contribute funds at the same rate to SEP IRA accounts for all their eligible employees.

The rate may change from year to year, a flexibility designed to help companies that may have differences in cash flow. Also note: contributions are calculated based only on the first $360,000 of an employee’s compensation in 2026. That's a $10,000 increase from the 2025 limit of $350,000.

SEP IRAs vs. traditional IRAs

SEP IRAs follow many of the same rules as traditional IRAs. You generally must be at least 59-1/2 to take withdrawals from the account without paying a 10% penalty.

SEP IRA account owners may take distributions at any time. But keep in mind that these distributions are subject to a 10% tax penalty if the account owner is under 59-1/2 years old and does not roll the funds over into another IRA or another employer’s retirement plan.

And once you turn age 73, you will have to start taking required minimum distributions (RMDs). You have until April 1 of the year after you turn 73 to take your first required minimum distribution, but after that you must take RMDs by December 31 of each year (even if you took your first RMD on April 1 of that same year). Prior to 2023, the mandatory RMD age was 72. It will increase to 75 in 2033.

Since employers make the contributions, not employees, catch-up contributions for retirement savers 50 and over are not permitted in SEP IRAs. However, employees have the responsibility of making investment decisions about their SEP IRA accounts.

The benefits of a SEP IRA

SEP accounts have many benefits, including tax-deferred compounding and high contribution limits. They are a practical and no-nonsense way to save for retirement. A SEP IRA is easy to open and widely available at financial institutions that offer individual retirement accounts.

This type of account is also a good option for a worker with a side gig out of his or her regular job, as it allows the worker to contribute fully to his or her employer's 401(k) and use the SEP IRA for self-employment income.

Related Content

• I'm 54 with a $320,000 IRA and will soon be self-employed, earning $120,000 per year. How much should I save for retirement?
• SEP IRA vs. Solo 401(k): Which Is Better?
• What Is an IRA and Which Type is Best for You?
• How IRAs Impact Social Security

We normally have one day in our heads when it comes to taxes: The due date for federal income tax returns. In 2022, "Tax Day" fell on April 18 for most taxpayers. But, of course, this isn't the only tax deadline during the year. In fact, there are several deadlines coming up on October 17 that many people should be thinking about, too.

It's very important to know and understand all tax deadlines – including the October 17 due dates. If you were to overlook a deadline, it could cost you a lot of money through either penalties, interest, or additional taxes. So, let's go over 5 tax deadlines for October 17 that you don't want to miss. Check them out to see if something unexpected applies to you.

If you didn't file your 2021 federal tax return by April 18, 2022, and requested a filing extension by that time, the extended due date is October 17, 2022. Bear in mind that if you requested an extension to file, that doesn't lengthen the time to pay whatever you owe in tax. You still had to estimate the amount of tax owe and pay that tax bill by April 18. Otherwise, you may be hit with penalties and interest on the unpaid amount.

Some people may have more time to file an extended federal tax return. For example, taxpayers living abroad or who served in a combat zone may be able to file an extended return later than October 17. Additionally, the IRS allows some people who are victims of a natural disaster to file an extended return after October 17. Check the IRS's disaster relief website to see if you're in an area where this type of disaster relief is allowed.

[Note: Victims of the Montana severe storms and flooding that began on June 10, 2022, have until October 17 to file federal returns and pay federal taxes originally due from June 10 to October 16, 2022.]

For some people, a federal tax return is not the only return due on October 17, 2022. Assuming you don't live in a state that has no income tax, chances are good that you'll need to file a state income tax return by October 17 if you asked for and received an extension from your state (maybe a local tax bill too).

Many states have moved their state tax return deadlines to mirror federal tax return due dates. Therefore, since October 17 is the due date for extended federal tax returns, it's also the due date for many state tax returns that have been extended. However, to be sure, it's smart to check with the state tax agency where you live so that you know and understand the deadlines for things like extensions, estimated payments, and returns for other types of taxes.

A Simplified Employee Pension IRA, or SEP IRA for short, is a favorite of self-employed people and small business owners who want to save money with a simple and inexpensive retirement plan. In fact, you can stash away more for retirement with a SEP IRA than with an employer-sponsored 401(k) plan. For 2022, you can contribute up to 25% of your pay or $61,000, whichever is less.

Therefore, if you were to use a SEP IRA, you can save more for retirement than if you used a traditional or Roth IRA. Remember that for 2022, the contribution limits for both a traditional and Roth IRA are $6,000 ($7,000 for those age 50 or older).

A SEP IRA must be set up by your tax return deadline (including extensions) for the year in which the qualifying contribution exists. The due date for contributing to the account is the same. Therefore, if you filed for an extension, the deadline for setting up and contributing to a SEP IRA for the 2021 tax year is October 17, 2022.

For those self-employed people who want to put money away in a Solo 401(k) and requested an extension to file their 2021 federal income tax return, they have until October 17 to contribute to the account for the 2021 tax year. The maximum that a self-employed person can contribute to a Solo 401(k) for 2021 is $58,000. Anyone who is age 50 or older can contribute up to $64,500. (For 2022, these amounts go up to $61,000 and $67,500, respectively.)

Since you can make contributions to a Solo 401(k) both as an employee and an employer, these amounts may seem high, but remember that the limits for contributing to all 401(k) plans are based on aggregate totals. Therefore, if you contribute to a 401(k) plan through your place of work, that amount will count against the overall limit of $58,000 or $64,500 and, therefore, the amount that you can contribute to your Solo 401(k) plan will decrease.

You contributed too much to your IRA and now have excess contributions! What do you do? The best way to deal with this situation is to withdraw the excess amount before the due date of the tax return for the taxable year of the contribution (including any extension). That means you have until October 17, 2022, to withdraw excess funds contributed in 2021 if you requested a filing extension for your 2021 tax return. This allows you to avoid the 6% penalty if the withdrawal is done timely. If not done timely, the excess contribution plus any earnings on the excess amount will be subject to a 6% penalty for every year the excess remains in the IRA.

Time is running out if you haven't filed your 2022 federal income tax return yet. This year's tax filing deadline is April 18 for most people. (The tax deadline is extended for some residents in states impacted by severe weather and storms). But filing your federal tax return isn't the only thing you should be thinking about for April 18, because there are a few more tax deadlines that fall on that day.

If you are self-employed, saving for retirement or college, have a health savings account, or employ a nanny, you may want to take action by the tax deadline. There are other reasons why you might have a tax-related deadline today.  And, overlooking a tax deadline could cost you money, either in additional taxes, penalties, or interest. So, here are 9 tax deadlines for Tax Day, April 18, that you don't want to miss. Check them out to see if any apply to you.

Of course, the biggest due date on the tax calendar each year is the one for your federal personal income tax return. Like most of the tax deadlines on this list, it usually falls on April 15 but is April 18 this year because of a local holiday in Washington, D.C. and because April 15 falls on a weekend. 

This year, you generally must file your return for the 2022 tax year (i.e., for the income you received from January 1 to December 31, 2022). Use Form 1040 and the related schedules to report your 2022 income, adjustments, and credits. The IRS recommends filing your return electronically, as opposed to using a paper form and mailing it in, because the return will be processed much faster. If you are getting a tax refund, you will also get your money much faster if you e-file your return. Opting for direct deposit over a paper check will speed up your refund as well.

If you can't file your income tax return on time, you can get an extension until October 16. However, to get the extension, you must request it by the end of the day on April 18. To make the request, either file Form 4868 or make an electronic tax payment.

Just remember that the extension to file your return doesn't extend the time to pay your tax. You still have to estimate the amount of tax you'll owe and pay your tax bill by midnight April 18. If you don't act in time, the IRS will charge you interest on the unpaid balance and hit you with late payment penalties.

For more information, including extension details for Americans living abroad and people serving in a combat zone, see How to Get More Time to File Your Tax Return.

Although we only have to file an income tax return once each year, the IRS expects you to pay your taxes throughout the year as you earn income. If you are working for a business, those tax payments are withheld from your paycheck and sent to the IRS by your employer. But if you are self-employed or have income from other sources that aren't subject to withholding, then it is up to you to make quarterly estimated tax payments during the year.

The first estimated tax payment for 2023 is due April 18 for most people. This payment is for the estimated amount of taxes owed for income received from January 1 to March 31, 2023. Use Form 1040-ES to calculate and pay your estimated taxes. If at least two-thirds of your gross income is from farming or fishing, you can make just one estimated tax payment for the 2023 tax year by January 17, 2024. If you don't pay enough tax during the year, either through estimated payments or withholding, the IRS could hit you with a stiff penalty.

If you want to put more money in an IRA and have it count towards your 2022 contributions, you have until the end of the day on April 18 to make that move (If you're in a state impacted by disaster or storms, the IRS may have extended that deadline). That's because most people have until your tax return filing deadline for the year to fund an IRA for that year. But remember that there are limits to the amount you can contribute to an IRA each year. For 2022, you can put away up to $6,000 in an IRA – $7,000 if you're age 50 or older.

If you haven't already maxed out your 2022 IRA contributions, doing so before the April 18 tax deadline can be a smart move. First, contributions to a traditional IRA are often tax deductible, while withdrawals from a Roth IRA are tax-free. So, whether you contribute to a traditional or a Roth IRA, you can cut your tax bill now or in the future.

People with low or moderate income who contribute to an IRA might also qualify for the Saver's Credit, which can be worth as much as $1,000 ($2,000 for joint filers).

If you contribute to an IRA for 2022 by the tax filing deadline, you can claim the IRA deduction and/or the Saver's Credit on your 2022 tax return. That means you can get the tax benefits immediately, instead of waiting until next year if you were to contribute the same amount after Tax Day.

Also note that the tax return filing deadline is also the last day to withdraw any excess 2022 contributions to your IRAs (if you didn't request a filing extension). So, if you put in more than the $6,000 limit ($7,000 if you're 50 or older), take it out now to avoid stiff penalties.

Self-employed people saving for retirement have until the end of the day on April 18 to put money away in a Solo 401(k) plan or Simplified Employee Pension (SEP) IRA for 2022. If they request a tax return filing extension, the deadline shifts to October 16.

For the 2022 tax year, a self-employed person can contribute up to $61,000 to a Solo 401(k) – $67,500 if they are age 50 or older. (Those amounts go up to $66,000 and $74,500, respectively, for 2023.) These amounts are relatively high because you can make contributions as both an employee and an employer, although the April 18 deadline only applies to the "employer contributions."

The SEP IRA contribution limit for 2022 is $61,000 ($66,000 for 2023). Only the employer can contribute to a SEP IRA, and whatever percentage of compensation employers set aside in the plan for themselves is the same percentage of pay they must contribute for each eligible employee.

Contributions to both Solo 401(k)s and SEP IRAs are deductible – at least to a point. Contributions made to a Solo 401(k) as an employer are deductible business expenses. However, the deduction can't be more than 25% of the compensation paid (or accrued) during the year to eligible employees participating in the plan. If you're self-employed, you must reduce this limit for contributions you make for your own account.

For a SEP IRA, the most you can deduct on a 2022 tax return for contributions to your or your employee's account is the lesser of:  (1) your contributions, or (2) 25% of the compensation (limited to $305,000 per participant) paid to the participants during the year from the business that has the plan, not to exceed $61,000 per participant. (In 2023, these amounts increase to $330,000 and $61,000, respectively.) If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for the contributions.

If you have a health savings account (HSA) or Archer medical savings account (MSA) as part of your health insurance plan, Tax Day (April 18) is the last day you can contribute to the account for 2022 (People in states where the IRS extended the tax deadline due to storms, have more time).

For 2022, you can contribute up to $3,650 to an HSA if you have self-only coverage or up to $7,300 for family coverage. (For 2023 figures and other 2022 limits, see HSA Contribution Limits and Other Requirements.) For an Archer MSA, you or your employer can contribute up to 75% of the annual deductible of your high deductible health plan (65% if you have a self-only plan), although you can't contribute more than you earned for the year from the employer through whom you have your HDHP.

Plus, you may qualify for a deduction on your 2022 tax return for contributions to your HSA or Archer MSA (complete Form 8889 for the HSA deduction and Form 8853 for the Archer MSA deduction). If you can claim one of these deductions, think about putting more money into the account for 2022 before the tax deadline expires if you haven't already reached the contribution limit. That's especially true if you plan to make a contribution soon anyway. That way, you'll get that extra deduction for 2022 and save more cap space for 2023 contributions.

People saving for retirement or medical expenses have until the end of today to contribute to 2022 accounts – but what about people saving for college? If you're using a Coverdell Education Saving Account (ESA) to save away money for college, then you also have until the end of Tax Day, April 18, to put more money away in the account for 2022.

With a Coverdell ESA, you can't contribute more than $2,000 for any particular child. Plus, if your modified AGI is between $95,000 and $110,000 (between $190,000 and $220,000 for joint filers), the $2,000 limit for each child is gradually reduced to zero.

There's no deduction for contributions to a Coverdell ESA. However, money deposited in a Coverdell ESA grows tax free, and there's no tax on distributions used for qualified college expenses. So, the earlier you get money into the account, the more time it has to grow before the child is off to college.

If you employ a nanny, babysitter, maid, gardener or other household worker, but you aren't filing a federal income tax return (Form 1040), you must file Schedule H and pay 2022 employment taxes for your household workers by the end of Tax Day (April 18). If you do file a tax return, include Schedule H with the return and report the tax owed on Schedule 2 (Form 1040), Line 9.

Both you and the employee may owe social security and Medicare taxes. You're responsible for payment of the employee's share of the taxes as well as your own. You can either withhold your worker's share from the employee's wages or pay it out of your own pocket.

Your share is 7.65% of the employee's wages (6.2% for Social Security tax and 1.45% for Medicare tax). Your employee owes the same amount. The limit on wages subject to social security tax was $147,000 for 2022, but there's no limit on wages subject to the Medicare tax. Household employees also owe a 0.9% additional Medicare tax on wages exceeding $200,000 for the year. The additional tax is only imposed on the employee, but you have to withhold it from their wages and pay it to the IRS.

You also might have more to worry about than just federal taxes. Unless you live in a state with no income tax, you probably have to file a state income tax return on April 18, too. (You might have a local tax return due as well).

In most states, the deadline for file a state income tax return is the same as the federal due date. But there are a few states that have a different due date. Also, due to severe weather and natural disasters, some states have extended tax deadlines.

For state tax deadlines, including those for extension requests, estimated payments, and returns for other types of taxes, check with the state tax agency where you live.

Self-employed workers and small-business owners who want an easy and inexpensive retirement plan should consider a Simplified Employee Pension IRA, or SEP IRA for short. SEP IRA plans are easier to establish than other retirement plans and have lower costs to administer.

2022 SEP IRA Contribution Limits

For 2022, a self-employed business owner effectively can salt away as much as $61,000 a year, but no more than 25% of their compensation. (That's up from the maximum of $58,000 in 2021 and $57,000 for 2020.) In comparison, a traditional IRA limits contributions to $6,000 for 2022 for those younger than 50, or $7,000 for those 50 or older thanks to a $1,000 "catch-up" contribution.

Like other individual retirement accounts, these contributions are tax deductible. But contribution rates are required to be uniform for all employees of a company that has a SEP IRA plan, including the owner. So while these plans offer small business owners an opportunity to save much more for their own retirement than they could with a traditional IRA, the catch is they have to contribute funds at the same rate to SEP IRA accounts for all their eligible employees. The rate may change from year to year, a flexibility designed to help companies that may have differences in cash flow. Also note: Contributions must be based only on the first $305,000 of an employee’s (or owner’s) compensation for 2022. This is up from $290,000 for 2021 and $285,000 for 2020.

SEP IRAs are available for a variety of small-business types, including sole proprietorships, partnerships, limited liability companies, S corporations and C corporations. The plans can be an especially attractive option for a small business with few employees.

Unlike some other retirement plans, a SEP IRA is created primarily as a vehicle for employer contributions, and not payroll deductions. However, employers may also make contributions to their SEP IRA accounts, subject to the limit of traditional IRA contributions. And unlike 401(k) plans, the funds in a SEP IRA cannot be used as collateral for loans. As soon as a contribution is made to a SEP IRA, the money is considered 100% vested and owned by the employee.

To be eligible to participate in an employer's SEP IRA, the IRS says employees must be at least 21 years old, have worked at the business for three of the past five years and have earned at least $650 from the job in 2022. Employers may, however, set less restrictive eligibility rules. For example, they may enroll newly hired employees. But the rules must uniformly apply to all employees. Employers may exclude employees from their SEP IRA plan if the employees are part of a union agreement that includes retirement benefits. They also may bar nonresident alien employees who do not have U.S. wages, salaries or other personal services compensation from the employer.

SEP IRAs vs. Traditional IRAs

SEP IRAs follow many of the same rules as traditional IRAs. You generally must be at least 59 1/2 to take withdrawals from the account without paying a 10% penalty. Also, SEP IRA account owners may take distributions at any time. These distributions are subject to a 10% tax penalty if the account owner is under 59 1/2 years old and does not roll the funds over into another IRA or another employer’s retirement plan.

And once you turn age 72, you will have to start taking required minimum distributions (RMDs). You have until April 1 of the year after you turn 72 to take your first required minimum distribution, but after that you must take RMDs by December 31 of each year (even if you took your first RMD on April 1 of that same year).

Since employers make the contributions, not employees, catch-up contributions for retirement savers 50 and over are not permitted in SEP IRAs. However, employees have the responsibility of making investment decisions about their SEP IRA accounts.

A SEP IRA is easy to open and widely available at financial institutions that offer individual retirement accounts. This type of account is also a good option for a worker with a side gig out of his or her regular job. It would allow the worker to contribute fully to his or her employer's 401(k) and use the SEP IRA for self-employment income.

Congress Considers SEP Changes

Congress is considering legislation aimed at improving retirement savings in the U.S., including provisions that could expand SEP options. Among the changes included in the Enhancing American Retirement Now (EARN) Act, a bill that recently cleared a Senate committee, is a provision that would allow a Roth version of SEP IRAs, enabling employers to create accounts that contain after-tax contributions. Another provision would permit people with domestic employees, such as nannies, to provide them with retirement benefits under a SEP IRA.

You have until December 31 to stash the maximum $19,500—or up to $26,000 if you’re 50 or older by the end of the year—in a 401(k) and until April 15, 2022, to contribute the maximum $6,000 (or $7,000 if you’re 50 or older) for 2021 to your IRA. Contributions to 401(k) accounts aren’t included in your taxable income. If you’re not eligible for a workplace retirement plan, or your income falls below specific thresholds, you can deduct contributions to a traditional IRA. In both cases, your contributions will lower your 2021 tax bill.

If you were self-employed or had a side hustle in 2021, you can save even more in a tax-advantaged account. As both employee and employer, for 2021, you can contribute up to $58,000 ($64,500 if you’re 50 or older) to a solo 401(k) plan, which is available to anyone with self-employment or freelance income. Your contributions can’t exceed your self-employment income for the year. You have until December 31 to make the employee share of your contribution and until April 15, 2022, to contribute as an employer.

Alternatively, you could contribute to a SEP IRA, which allows individuals to put away up to 20% of net self-employment earnings, with a $58,000 maximum. The deadline to both establish and fund a SEP IRA for the 2021 tax year is April 15, 2022.

Usually, withdrawing money from a traditional IRA before age 59½ results in a 10% penalty (the penalty also applies if you withdraw earnings early from a Roth IRA, but contributions can be withdrawn anytime without repercussions). The 2020 Coronavirus Aid, Relief and Economic Security (CARES) Act, however, permitted penalty-free withdrawals of up to $100,000 from an IRA or 401(k) in 2020 regardless of your age. You owe no federal income tax on the withdrawal if you put the money back into your account within three years of the date you received the distribution. (You may file an amended tax return to reclaim any tax you’ve already paid.) Consider repaying at least a chunk of the withdrawal amount this year. Or you can spread income tax on the distribution evenly over three years. If you took advantage of this provision, make sure that you account for the portion of tax you owe for 2021.

Consider a Roth Conversion

Especially if you think that your income tax rate will go up next year, you may want to convert your traditional IRA to a Roth IRA now. You’ll pay tax on the deductible traditional IRA contributions that you convert, but all withdrawals from the Roth are tax-free once you reach age 59½ and have owned the account for at least five years. Plus, you don’t have to take required minimum distributions from a Roth. For more on Roth conversions, see Kiplinger's Guide to Roth Conversions.

Don’t Forget to Take RMDs

Thanks to pandemic-related relief measures, retirees didn’t have to make their 2020 annual required minimum distributions from 401(k)s and traditional IRAs. But you’re back on the hook for 2021. If you were born on or after July 1, 1949, RMDs start at age 72, and you have until April 1 of the year after you turn 72 to take your first RMD; after that, yearly withdrawals are due by December 31. (Those born before July 1, 1949, had to take their first RMD at age 70½.) How much will you need to take out? Try our RMD calculator.

Transfer IRA Money to Charity

If you’re 70½ or older, you can direct up to $100,000 each year from your IRA to an eligible charity through a qualified charitable distribution (QCD). The amount you transfer is excluded from your taxable income, and it counts toward all or part of your RMD for the year. For a QCD to be eligible as an RMD, you must make the QCD by your RMD deadline, which is usually December 31.

Note that changes in the law now allow those 70½ or older who have earned income to contribute to a traditional IRA. If you make tax-deductible contributions to an IRA at age 70½ or later, the tax-free amount of a subsequent QCD is reduced by the amount of the contributions.

Self-employed workers and small-business owners who want an easy and inexpensive retirement plan should consider a Simplified Employee Pension IRA, or SEP IRA for short. Savers are also allowed to stash away more for retirement with a SEP IRA compared to an employer-sponsored 401(k) plan.

SEP IRA Contribution Limits for 2021

For 2021, a self-employed business owner effectively can salt away as much as 25% of his or her net income in a SEP IRA, not to exceed the maximum contribution limit of $58,000. (That's up from the maximum in 2020.) In comparison, a traditional IRA limits contributions to $6,000 for 2021 for those younger than 50, or $7,000 for those 50 or older thanks to a $1,000 "catch-up" contribution.

SEP IRAs are available for a variety of small-business types, including sole proprietorships, partnerships, limited liability companies, S corporations and C corporations. The plans can be an especially attractive option for a small business with few employees.

There's a twist, however, when it comes to SEP IRAs. Unlike some other retirement plans, a SEP IRA allows only the employer to contribute. And whatever percentage of compensation employers set aside in the plan for themselves is the same percentage of pay they must contribute for each eligible employee.

To be eligible to participate in an employer's SEP IRA, employees must be at least 21 years old, have worked at the business for three of the past five years and have earned at least $650 from the job in 2021.

SEP IRAs vs. Traditional IRAs

SEP IRAs follow many of the same rules as traditional IRAs. You generally must be at least 59 1/2 to take withdrawals from the account without paying a 10% penalty.

And once you turn age 72, you will have to start taking required minimum distributions (RMDs). You have until April 1 of the year after you turn 72 to take your first required minimum distribution, but after that you must take RMDs by December 31 of each year (even if you took your first RMD on April 1 of that same year).

Since employers make the contributions, not employees, catch-up contributions for retirement savers 50 and over are not permitted in SEP IRAs.

A SEP IRA is easy to open and widely available at financial institutions that offer individual retirement accounts. A business owner must first complete an application with a brokerage or investment company such as Fidelity, Vanguard or Charles Schwab, says Todd Youngdahl, a certified financial planner in Falls Church, Va. This type of account allows business owners to develop an investment strategy and portfolio with many choices for investments, including mutual funds, exchange-traded funds and individual stocks, at little operational cost, he says.

"In most cases, there is no set-up fee for a SEP IRA and no annual custodial or maintenance fee," Youngdahl says.

A SEP IRA would be a good option for someone with a side gig outside of his or her regular job, says Mark Beaver, a CFP in Dublin, Ohio. It would allow the worker to contribute fully to his or her employer's 401(k) and use the SEP IRA for self-employment income, Beaver says.

Self-employed workers and small-business owners who want an easy and inexpensive retirement plan should consider a Simplified Employee Pension IRA, or SEP IRA for short. Savers are also allowed to stash away more for retirement with a SEP IRA when compared to an employer-sponsored 401(k) plan.

>>For more 2020 tax changes, see Tax Changes and Key Amounts for the 2020 Tax Year.<<

SEP IRA Contribution Limits for 2020

For 2020, a self-employed business owner effectively can salt away as much as 20% of his or her net income in a SEP IRA, not to exceed the maximum contribution limit of $57,000. (That's up from the maximum in 2019.) In comparison, a traditional IRA limits contributions to $6,000 for 2020 for those younger than 50, or $7,000 for those 50 or older thanks to a $1,000 "catch-up" contribution.

SEP IRAs are available for a variety of small-business types, including sole proprietorships, partnerships, limited liability companies, S corporations and C corporations. The plans can be an especially attractive option for a small business with few employees, says Brad Ronsley, a certified financial planner in Glen Ellyn, Ill.

There's a twist, however, when it comes to SEP IRAs. Unlike some other retirement plans, a SEP IRA allows only the employer to contribute. And whatever percentage of compensation employers set aside in the plan for themselves is the same percentage of pay they must contribute for each eligible employee.

To be eligible to participate in an employer's SEP IRA, employees must be at least 21 years old, have worked at the business for three of the past five years and have earned at least $600 from the job in the past year.

SEP IRAs vs. Traditional IRAs

SEP IRAs follow many of the same rules as traditional IRAs. You generally must be at least 59 1/2 to take withdrawals from the account without paying a 10% penalty.

And once you turn age 72, you will have to start taking required minimum distributions (RMDs). You have until April 1 of the year after you turn 72 to take your first required minimum distribution, but after that you must take RMDs by Dec. 31 of each year (even if you took your first RMD on April 1 of that same year).

Since employers make the contributions, not employees, catch-up contributions for retirement savers 50 and over are not permitted in SEP IRAs.

A SEP IRA is easy to open and widely available at financial institutions that offer individual retirement accounts. A business owner must first complete an application with a brokerage or investment company such as Fidelity, Vanguard or Charles Schwab, says Todd Youngdahl, a certified financial planner in Falls Church, Va. This type of account allows business owners to develop an investment strategy and portfolio with many choices for investments, including mutual funds, exchange-traded funds and individual stocks, at little operational cost, he says.

"In most cases, there is no set-up fee for a SEP IRA and no annual custodial or maintenance fee," Youngdahl says.

A SEP IRA would be a good option for someone with a side gig outside of his or her regular job, says Mark Beaver, a CFP in Dublin, Ohio. It would allow the worker to contribute fully to his or her employer's 401(k) and use the SEP IRA for self-employment income, Beaver says.

A Simplified Employee Pension IRA, or SEP IRA for short, is a good option for self-employed workers and small-business owners who want an easy and inexpensive retirement plan. A SEP IRA is also generous, allowing retirement savers to put away much more than they could with some other retirement accounts.

SEP IRA Contribution Limits for 2019

For 2019, a self-employed business owner effectively can salt away as much as 20% of his or her net income in a SEP IRA, not to exceed the maximum contribution limit of $56,000. That's up from $55,000 in 2018. In comparison, a traditional IRA limits contributions to $6,000 for 2019 for those younger than 50, or $7,000 for those 50 or older thanks to a $1,000 catch-up contribution.

SEP IRAs are available for a variety of small-business types, including sole proprietorships, partnerships, limited liability companies, S corporations and C corporations. The plans can be an especially attractive option for a small business with few employees, says Brad Ronsley, a certified financial planner in Glen Ellyn, Ill.

There's a twist, however, when it comes to SEP IRAs. Unlike some other retirement plans, a SEP IRA allows only the employer to contribute. And whatever percentage of compensation employers set aside in the plan for themselves is the same percentage of pay they must contribute for each eligible employee.

To be eligible to participate in an employer's SEP IRA, employees must be at least 21 years old, have worked at the business for three of the past five years and have earned at least $600 from the job in the past year.

SEP IRAs vs. Traditional IRAs

SEP IRAs follow many of the same rules as traditional IRAs. You generally must be at least 59 1/2 to take withdrawals from the account without paying a 10% penalty.

And once you turn age 70 1/2, you will have to start taking required minimum distributions (RMDs). You have until April 1 of the year after you turn 70 1/2 to take your first required minimum distribution, but after that you must take RMDs by Dec. 31 of each year (even if you took your first RMD on April 1 of that same year).

Since employers make the contributions, not employees, catch-up contributions for retirement savers 50 and over are not permitted in SEP IRAs.

A SEP IRA is easy to open and widely available at financial institutions that offer individual retirement accounts. A business owner must first complete an application with a brokerage or investment company such as Fidelity, Vanguard or Charles Schwab, says Todd Youngdahl, a certified financial planner in Falls Church, Va. This type of account allows business owners to develop an investment strategy and portfolio with many choices for investments, including mutual funds, exchange-traded funds and individual stocks, at little operational cost, he says.

"In most cases, there is no set-up fee for a SEP IRA and no annual custodial or maintenance fee," Youngdahl says.

You can build a sizable nest egg with a SEP IRA. For example, take a 30-year-old who contributes $10,000 a year to a SEP IRA and has an annual return of 6%. By age 65, he or she will have contributed $350,000, but the nest egg will have grown to nearly $1.2 million.

A SEP IRA would be a good option for someone with a side gig outside of his or her regular job, says Mark Beaver, a CFP in Dublin, Ohio. It would allow the worker to contribute fully to his or her employer's 401(k) and use the SEP IRA for self-employment income, Beaver says.

Question: I'm self-employed and still working at age 70½. Most of my retirement money is in a simplified employee pension (SEP) rather than a 401(k). Do I still need to take required minimum distributions? How are required distributions for SEP IRAs calculated?

Answer: Even though you can generally delay taking required minimum distributions from your current employer's 401(k) while you are still working (unless you own 5% or more of the company), those rules don't apply to traditional IRAs. You must start taking RMDs at 70½, whether or not you are still working. SEP IRAs are treated like traditional IRAs, and therefore you must take withdrawals from the SEP IRA starting by age 70½, says Maura Cassidy, vice president of retirement for Fidelity Investments. You have until April 1 of the year after you turn 70½ to take your first required withdrawal, but after that you must take RMDs by December 31 each year (even if you took your first RMD on April 1 of that same year).

The rules for calculating required minimum distributions for a SEP are also the same as for a traditional IRA. You must calculate the required withdrawals separately for each traditional account, but then you can take the total amount from any of your traditional IRAs or from your SEP, or any combination of those accounts. Roth IRAs are not included, however, because they do not have RMDs.

Our RMD calculator can help you figure out how much you must withdraw. Also see 10 Things Boomers Must Know About RMDs from IRAs for more information.