Have you chosen to balance your time with a “best of both worlds” approach to employment and entrepreneurship? This means you’re holding down a full-time job working for someone else while running a side hustle or side business in your off hours.
Yes, it means more work on your part, but there are also greater benefits and rewards to reap.
If you’re employed, you have access to things like employer-sponsored retirement accounts, health insurance, and other company benefits. And if you’re doing work on the side as a freelancer, contractor, or bringing in another form of self-employed earnings, you’re increasing your income, financial stability, and that personal satisfaction that only comes from being in charge of some aspect of your own career.
When you choose the best of both worlds, you’re likely perfectly positioned to pick up an additional perk for yourself. You may have your retirement account at work and a Roth IRA to house all your extra income, but you can continue to make the most of your dual role as an employee and entrepreneur by opening a SEP IRA.
What Is a SEP IRA?
If you’re bringing any amount of side income, you need a SEP IRA if you want to continue making the most of your money and building your wealth.
A SEP, or simplified employee pension, is a special retirement account designed for those who are self-employed (or run really small businesses).
Like your 401(k) at work or a traditional IRA, your contributions to this account are tax-deferred per an online tax calc. This can add up to some serious tax savings in the year you contribute — and for those who make self-employment income, you know the kind of bite Uncle Sam can take out of your earnings. A SEP IRA can help lessen your tax burden.
Why You Need a SEP IRA If You’re Both Employed and Bringing in a Side Income
But why is a SEP IRA so crucial for those who are wearing multiple hats as employees and entrepreneurs? Because the SEP is incredibly flexible while allowing you to save a whole lot for the future.
Not only can you have and max out a traditional or Roth IRA while you contribute to or max out a SEP IRA, but you can also open a SEP if you made any amount of self-employment income for 3 out of the last 5 years.
In other words, you don’t have to be full-time self-employed to take advantage of a SEP IRA. This is great for those who are juggling full-time jobs working for someone else with establishing their own side income.
A SEP may also allow you to save far more than you would if you were only relying on traditional or Roth IRAs (which you can contribute to if you’re self-employed full- or part-time, as well). Those come with contribution caps, set at $5,500 for 2014.
A SEP IRA, however, allows you to save up to 25% of your self-employment earnings (that’s if you’re incorporated; if you’re a sole proprietor, you can save 20% of your earnings). This makes this account that much more valuable if you’re already able to max out your traditional or Roth IRA from income earned via your employer.
If you’re working hard to build a side income while holding down a full-time job as an employee, do yourself, your finances, and your wealth a favor. Look into the SEP IRA, and see how it could help put you on the fast-track to greater financial stability and independence.