There’s a lot of confusion in the variety of retirement options that exist and whether or not they’re the right choice in the long run. This further inhibits the ability of those just starting out to take decisive action. There’s certainly no way to truly predict what course to take, but one thing is for certain: your day-to-day senior living expenses are going to be a lot more than you may realize. If there’s no income from being employed, it’s going to have to come from somewhere. The “best” choice is a decision each of us has to make on our own, but the following is a run-down of the most important components of retirement:

SOCIAL SECURITY & MEDICARE

These two you’re already familiar with as deductions from every paycheck you’ve ever received.
The Social Security Act was passed in the wake of the Great Depression to create a public insurance policy against unemployment, disability, and old age living. Increased life expectancy, the rising cost of healthcare, and general increases in the cost of living have put the senior reliance on social security in question, as most of those in retirement do not receive nearly enough from the program to cover their living expenses. Despite watering down the disbursements, the program is projected to run out of money by the mid 21st century.

Medicare was a health insurance program created by the federal government in the 1960s to cover those over the age of 65 and those under 65 who are permanently disabled or suffer from some other devastating injury or illness. Additional legislation has entitled those who receive Medicare to have it cover their drug costs as well. However, these additional entitlements have put Medicare’s long term existence into question as well.

401(K) AND IRA

Traditionally, Americans who had a retirement plan through their employers had what was called a defined benefit plan. Depending on how long they worked with the company they received a predetermined pension. It was calculable and predictable. But in the last thirty years or so, employers have mostly switched to what is known as a defined contribution plan. This option allows employees to pay into their own retirement plan through their employer tax-free until retirement when the final amount is taxed, or other tax-exempting shifts.

The 401(k) is the most popular of these options. Depending on the particular model your employer or yourself chooses, you can deposit anywhere from $11,000-16,000 into your account without it being taxed for that year. Employers can match your deposits or offer some other form of contribution depending on the specifics. You have the freedom to withdraw your money relatively easily if you choose this option though it may interfere with the lax of tax. Investment options with the 401(k) are limited. In the wake of the 2008 financial crisis, the average 401(k) lost nearly one-third of its value.

Individual Retirement Accounts, or IRAs, are a little more catered toward the individual as the name implies. There’s no option for an employer to contribute in any way and the money can’t be withdrawn, but the money can be invested with much more freedom than the funds in a 401(k). The tax scenario is similar to the 401(k), with deductions on the deposits available up to $5,000. This setup is in some ways reversed in a Roth IRA, wherein any amount of taxable deposits can be made up to $5,000, but withdrawals from the final fund are tax-free.

In April 2011, the percentage of Americans who had investments in their 401(k) or IRA fell to 54%, the lowest point since the statistic has been kept track of.

ANNUITIES

Annuities are simple insurance-style plans wherein the individual pays an insurance company either a lump sum or scheduled payments that guarantee that a set amount of money will be disbursed upon retirement. They leave little to the imagination, but are stable and predictable. Investment options are available but limited and certainly not necessary. In fact annuities should be seen as the conservative reverse of investment retirement options.

The way in which annuities are disbursed is a little backward so far as practical usage goes. Most increase in the amount of money they send out every month over a decade or so. The majority of retirees tend to spend less on expenses as they get older. Considering the instability of social security and Medicare however this safe bet might be a wise choice.

Retirement may seem like ages away, but it’ll be here before you know it. Affording life in real time is your number one priority followed by general savings towards lifetime goals, but retirement should always be on your mind as well. You’re working towards it after all, so you better know what you’re going to do when you get there.

The simple response to that query is that you don’t. Does that mean that you must continue working until you drop dead? Not necessarily, but you might consider part-time work, if you can find it, or consulting work if you have the skills and network to support your effort. There are a few paths to “quicker riches”, but their probabilities are too low to encompass a broad-based solution for many individuals.

The potential does exist, however, to connect with an “up-and-coming” venture, one that is growing and could be acquired if the principals play their “cards” correctly. A “5%” interest in one of these concerns could translate into a cool $1 million long-term capital gain payday if the firm’s revenue demographics warrant a valuation of $20 million. Small companies are risky enterprises. Only 20% of these attempts will generally survive a single business cycle, and for those that do survive, the ability to be successful can be tied to a variety of variables.

Of course, winning the lottery or getting arrested in order for the state to care for you either has ridiculous odds for success or represents an avenue that no one wants to truly consider. How prepared are we for gearing back and taking it easy? A recent study conducted by the Employee Benefits Research Institute states that more than 50% of the survey respondents had a retirement “nest egg” of less than $25,000. This figure included employee benefit programs, savings and investments, and most importantly, the equity in their homes. A sad commentary on the recent real estate market implosion is that nearly 30% of all of home mortgages are at or nearly underwater, a situation where the mortgage exceeds the value of the home.

In the meantime, stocks have returned to pre-recession valuations, but that fact works in your favor only if you were brave enough to hold your positions in the market. Many did not. Fear persuaded many to accept their losses and transfer to less risky treasury bills, thereby missing out on the rebound that would have made them whole. With this bleak backdrop, what is one to do going forward?

As always, it is never too late to start saving for retirement. It may take more of a current “bite” to supplement social security, and it is prudent to continue working for as long as you can, whether full or part-time, if only to delay the start of your government payments. One little known fact is that your social security monthly benefit increases 8% a year for each year delayed from age 62 until 70. Every little bit helps, but the typical formula states that social security will only cover about 35% of your retirement needs, depending again on your individual lifestyle choices and their impact on your monthly budget.

Another often used formula states that your retirement needs will be 70% of your pre-retirement income, the level of funding required to maintain your current standard of living. The reduction comes from lower taxes and expenses related to commuting to your job, and from more time to find better deals on food and other consumables. Uncertainties will arise, and with living longer, healthcare costs can only escalate over time as Medicare is revamped for the future. The serious fact is that you have to continue saving, even after retirement.

However, the “gloom and doom” about retirement is often overstated. Americans have always learned to be creative and devise retirement solutions that will work. Working and saving may now be lifelong habits.

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This guest post is contributed by Tom Cleveland, who writes for Forex Traders.

But life is full of detours. What happens when you reach your late 50s and early 60s and realize that your retirement savings won’t be enough for those retirement dreams? You didn’t expect a major illness to eat up a chunk of your savings, nor did you think you’d get downsized, or that the kids would move back home because they lost their jobs.

You’re going broke, to put it mildly. What can you do? Here are five steps you can take to free up cash, save money, and increase your income.

Tip # 1: Sit down with pen, paper and calculator

First, list your assets and earnings (if you’re still working). Second, calculate your yearly expenses. Third, write your goals for retirement. For example, don’t say “travel a lot.” That’s too broad. “We want to travel twice a year to Florida and stay in hotels” is more specific than “travel a lot.” Smart goals are specific, measurable, attainable, relevant, and timed. Once you’ve completed this task, make an appointment with your financial planner.

If you don’t have a clue about personal financial planning, get help from someone who does.

Tip # 2: Take care of your health – book those medical exams appropriate for your age.

Your health comes first. If you’re healthy during your retirement years and your money runs out, at least you can always find work. Some people are planning to work past retirement to make up for the shortfall in their retirement savings, but they forget to obtain that clean bill of health from their doctor. Health is wealth, remember?

Tip # 3: Tap your house as a source of income

If you own your house and the mortgage is fully paid or you’ve got only a few more mortgage payments to make, you can use the equity you’ve built in your home to secure a low interest line of credit. Ask your financial planner if you qualify for a home equity loan. Your house could free up some of that much needed cash when the time comes.

Another way to make your home work for you is to rent out an empty room. If you’ve got a spare bedroom or a basement you don’t use, this might be a good source of income.

Use this sparingly and only when you need to. It isn’t a good idea to get into the habit of using your home as a credit card. As the great recession has shown, home prices don’t always go up. If and when home values fall you could end up in an upside mortgage.

Tip # 4: Cut down on unnecessary expenses.

You’ll be surprised how much you can save just by doing away with frivolous expenses. Sometimes that means cutting things out altogether. But most of the time you don’t have to. Take entertainment for example. Enjoy going out to the movies, but hate paying high ticket prices? Sign up with Netflix, Blockbuster online, or your local library to rent DVDs instead. Avoid pay-per-view like the plague.

Don’t want give up your favorite cable TV shows? Netflix, and Hulu Plus carry a large stock of cable TV programming. Are you a sports fanatic? With ESPN 360, you can watch live sports for free as long as your Internet provider is on the approved list.

If you aren’t ready to downgrade your internet, phone or cable TV packages, you can start by eliminating some channels that you don’t really watch. Contact your providers and attempt to negotiate. Most of them are willing to negotiate if they understand that you’re prepared to walk away. Many of them have low priced plans that aren’t advertised much. Typically they’ll for a commitment e.g. extending your contract to make sure that it’s affordable for them.

What about eating out? Is it possible to eat well on a micro-budget? Deep discounts from sites like Groupon and Living Social mean that not only is it possible for you to stay in budget and still eat great, it’s also sustainable. The only downside is that you may not get discounts if you eat at the same place every week. Still, if you’re willing to try new places it’s definitely worth it.

Plan your trips in such a way that you save gas and cut down on the use of your car. Use helpful tools like MapQuest’s route planner. Use kayak to find the cheapest flights and Tripit to plan flights and longer trips.

Collect coupons and make a shopping list (smart housewives say that a shopping list helps prevent buying things you don’t need). Sites like Coupon Mom and RetailMeNot.com make clipping coupons, a breeze.

Tip # 5: Find ways to increase your income.

Starting a business, investing your money, or getting a second job are ideas that we’ve all heard about. But what if you need to start small? These ideas allow you to start small and start today.

• Become a freelancer. Freelance websites like Odesk, Elance, and Guru put you in touch with people looking to hire. If you’re a talented writer, designer, programmer, or marketer these sites can produce cash quickly, often in as little as 15 days.
• Sell used or collectible items on eBay, Craig’s List, or Amazon. You can sell used items via eBay, Amazon, overstock, and a wide variety of sites.
• Become an affiliate marketer. Affiliates refer people to businesses and they get paid when those people become customers. Many of the top Internet retailers offer affiliate programs.
• Sell homemade products. Selling homemade products on sites like at Etsy or Cafépress, is a great way to start an e-commerce business. You can build customer base, without taking the risks that come with running a traditional e-commerce store. You can start small, launching your own store when you’re ready.
• Write for money. Sites like About.com, Squidoo, HubPages, and Associated Content, trade cash for content. While the rules vary from site to site, they all reward high-quality content. Many people make a full-time living writing for content portals like the ones above.
• Write an e-book. You’re an expert at something. Create an e-book and capitalize on your expertise. You can share it on sites like Google books, Lulu.com, SlideShare, and Scribd in addition to any sites you own.
• Become a blogger. While it’s true that most bloggers don’t make much money, there are plenty of bloggers that do make money. If you’re willing to dedicate consistent, long-term effort it can be done.
• Get (free) items from Freecycle, Craigslist, or your local thrift store, and resell them for a profit (some people question whether this is ethical or not).
• Become a lender. Sites like the Lending Club and Prosper allow you to invest (loan out) your money. They do all of the grunt work to protect you from risks and can provide returns as high as 12%.

With consistent effort, it’s possible to boost income, reduce expenses, and quickly build a nest egg for retirement. From there, you can take the income you made and invest, using the power of compounding to quickly build passive income.

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Jack Vincent teaches you how to avoid the 17 pitfalls that lead to financial slavery and how to use the 23 principles that lead to wealth and prosperity. His book, The Way to Wealth Special Edition, is an updated, easy-to-read, modern day version of Benjamin Franklin’s, The Way to Wealth, originally written in 1758. His book has the practical wisdom you need to begin building wealth and gaining financial freedom! Download your copy today!

After the first year of the contract has passed, the guaranteed rate of return will often be an amount that is set at the insurance company’s discretion. In general, the minimum amount of return set by these companies is 3%. These annuities may be purchased from a life insurance company or from various different financial institutions. If a consumer is interested in purchasing such a policy, it will be possible for him or her to negotiate the price of the fixed annuity. Because the monetary amounts that an annuity will yield can vary between companies, it is in the consumer’s best interest to engage in comparison shopping, rather than making a hasty buying decision.

There are two different subcategories of fixed annuities: life annuities and term certain annuities. In general, the amount of monthly payments one makes for their fixed annuity will be determined by their life expectancy. There are three primary types of life annuities for an individual to choose from: straight life annuities, substandard health annuity, and guaranteed term annuities. Of the three, straight life annuities are the most straightforward. Its primary insurance component is determined by nothing more than providing an income for the consumer until he or she dies.

The substandard health annuity is generally purchased by an individual who suffers from chronic health problems. The prices of this annuity are determined by the likelihood that the individual will pass away in the near future. The lower the life expectancy of the purchaser is, the higher the cost of the annuity will be because there is a lower likelihood that the insurance company will return a profit on the annuity. Guaranteed term annuities differ in the fact that they allow the consumer to designate a beneficiary to the annuity in the even of their passing. In the event of their unexpected death of the purchaser, the beneficiary will receive a lump sum of cash from the insurance company.

The second type of fixed annuity, the term certain annuity, is quite different from the life annuity. It will yield a specific payment per period until the end of the contract, regardless of what might happen to the purchaser over the life of the annuity. However, if the purchaser were to die before the term of the annuity is over, then the insurance company is allowed to keep the remainder of the annuity’s balance. This type of fixed annuity can be beneficial because its payout is not determined by insurance components, like the health condition; however, its primary downside is that once the term of the annuity is over, its payout ceases.

In conclusion, fixed annuities are ideal for those who are looking to obtain a stable income throughout their retirement. Additionally, they may also be used for tax deferrals and savings. In contrast, fixed annuities can be difficult to manage due to the fact that the price of the insurance components can cut into the return the purchaser might see on their annuity investment. Before investing in fixed annuities, it will behoove an individual to thoroughly educate themselves by researching the different types of annuities that are available to them.

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This guest post is contributed by Steven Hart, who writes on the topics of Annuities.

This can provide a significant benefit for the purchaser by allowing him to defer income from his peak earning years to a later date when he is retired and earning less. It also can reduce the buyer’s tax burden and make his retirement more comfortable and enjoyable. In some respects it can be said that annuity investments create a mechanism by which an individual can purchase an income for later in life when his earning power will be reduced by age and declining health and vigor.

Annuities are available to fill a wide variety of needs in addition to deferring income to a later date such as retirement. Another typical situation arises when an individual receives a lot of money at one time. This can also have an impact on his tax situation, which can be mitigated by an annuity.

Instead of purchasing an annuity with a monthly payment, the entire lump sum can be used as a single payment for an annuity. The annuity buyer can arrange for the company to pay out a lump sum later or he can decide to receive it incrementally when he retires.

Depending upon his tax situation, the buyer may prefer to begin receiving periodic payments on a monthly basis immediately. Although this is not the same as deferring payments until retirement, the buyer may need the additional income such an option can provide. The net impact on his taxes could be considerably reduced by spreading the income out instead of reporting it all at once as a lump sum. There are many companies in the market and a lot of opportunities to compare annuities.

All annuities are contracts, but not all annuities are the same. Two distinct types of annuities are widely offered, fixed and variable. Fixed annuities guarantee that the money in your account will never earn less than a minimum rate of interest and that the payments you receive will never be less than the minimum amount agreed upon in the contract. In a time of economic volatility, fixed annuities offer a welcome stability.

Variable annuities can provide higher rates of interest on your account and more generous payouts. The rates of return and the payments you receive from the company, however, will vary according to economic conditions. A lot of variable annuities will go up and down with the stock market or the S & P 500. They offer greater potential returns but do so at the price of assuming greater risk than the fixed annuity. Variable annuities are also classified as “securities” and regulated at the federal level by the Securities and Exchange Commission. Fixed annuities are not considered “securities” and are consequently regulated at the state level often by insurance commissioners.

As a product, variable annuities include a mix of investment features. Some even include a death benefit like an insurance policy. Both kinds of annuities are contracts, however, and even though the concepts involved are clear and straightforward, any legally binding contract involves a lot of complexity and fine print.

For example, what happens if a financial setback compels you to withdraw your money from the annuity? Can you do it? Is there a penalty for early withdrawal, if so how much? Some annuities allow early withdrawal after a period of five year, or ten years in other cases. Make sure you know what your contract says.

Take the time to compare annuities offered by a wide range of insurance and mutual fund companies. Study the rates of return, penalties, administrative costs and options carefully. Given the competitive nature of the annuity market you can be sure the one you need is out there somewhere waiting to be found.

Let’s leave all the factors the same, but let’s say you start saving in your mid 30’s. You will be retiring with about 40% less than if you started ten years earlier. What this means is that you cannot wait to start saving tomorrow. The excuses run rampant for not saving and in a down economy with the unemployment rate through the roof I understand, but that does not mean that you should be doing nothing. Soon as you get your feet on the ground automatically have a portion of your earnings go into a bank account that you can eventually put into a Roth IRA. If your company matches a 401K and you are not using it, you are wasting out on tons of free money in retirement.

Saving is more important now than ever, but back to the title of this article… What is the right amount to save for Retirement? Well, that all depends. How much you make during the course of your life and your expectations for life when you retire.

Yearly Salary and Cost of Living

More than likely how much you make a year will have a direct affect on your plans for what you are going to spend yearly when you go into retirement. The estimate and quick down and dirty method I like to think of is: take your current cost of living by 80% and that is going to be around what you spend yearly in retirement. However, if right now you have a lot of debt and are paying that down and not spending much it may be easier to take your current take home salary by 80%. So, if you are spending 40,000 annually now, you should estimate to be spending AT LEAST 32,000 annually in retirement. However, having said that, this is a very rough estimate and likely by the time you retire inflation will make it so that 32,000 won’t get you quite as far. I wouldn’t take the chance, so I would over estimate if at all possible.

So, we will round up to 35,000 in retirement, now you need to find out how long you are going to live. Well, that is near impossible as new technology will probably allow us live much longer than we are currently expecting. If you are younger than forty, I suggest that you expect to live no shorter than 85. If you retire at 65, that leaves you twenty solid years to live off of retirement. Simple multiplication tells me you will need at least 700,000 dollars to live. Remember, once you retire you simply do not take out all your savings and will probably earn an interest rate of around 4-5% which will make up some of the difference as you go, but that will not keep up with what you will spend. All in all, I find it very difficult to set a number to what you need to have for retirement as there are too many variables like income, children, geographical location, inflation rates and interest rates. Start saving now, let compounding interest work for you and try to build that nest egg to a comfortable amount and overestimate what you will need. Once you retire it will be much easier to find ways to spend extra money than to search for ways to bring extra in.

This guest post is contributed by Cody at TheMillionDollarMission, he writes on the topic of Person Finance, Success and Career Development.

If you have a traditional IRA, your contributions might be tax deductible but your distribution may be taxable. To avoid tax when you take your money out of your account, you must be at least 59 ½ years old. In addition, you must take some money out of your account before you reach 70 ½ years old or you will be subject to significant penalties. The amount you must have withdrawn before reaching 70 ½ years old is determined by the Required Minimum Distribution calculation. The Required Minimum Distribution is determined by your account balance, your age, the age of your beneficiary and whether your sole beneficiary is also your spouse.

While taking an IRA distribution before age 59 ½ can result in penalties, there are a number of exceptions to this rule. Penalty-free withdrawals can me made from an account before age 59 ½ by your beneficiaries upon your death or if you become disabled. You can also use the money to pay for qualifying medical expenses that exceed 7.5% of your adjusted gross income or to pay for health insurance if you become unemployed. You can use the money to pay for the cost of higher education for yourself or your spouse, or your children and grandchildren. You can also use up to $10,000 penalty-free for a first time purchase of a home. While taking money for these purchases does not incur any penalties, you may be subject to income taxes for the money you have withdrawn. There are a number of other ways to take money from your account without penalty that concern excessive payments and other circumstances, however, these rules can be more difficult to understand and are best utilized with the help of an experienced financial advisor.

Because Roth IRA contributions are not tax deductible, you can withdraw your contributions (not your earnings) without income tax penalties. Earning can be withdrawn without penalty if you have reached age 59 ½, have become disabled or the earnings are being distributed to your beneficiary upon your death. You can also use up to $10,000 for the first time purchase of a home.

Taking an IRA distribution incorrectly can lead to significant penalties. In most cases, it is best to seek the advice of your accountant or financial planner before removing your money.

Married couples usually have individual careers of their own before they get married. When they were newly-weds, both of them were enjoying their personal incomes and sharing in the expenses at home, such as groceries, bills, fuel and mortgage loans. However, when the first child comes, some couples must sit down and talk about one of them giving up work to stay with their child and take care of him at home while he is very young. Giving priority to the child is often a worthwhile choice for the couple. And this is a very important decision that would change the set up of their daily lives from there on, having only one of them working for the whole family.

Either the wife or the husband must give up the jobs that both of them have grown to love through the years, all for the welfare of their child. Nothing could matter more to them. Knowing that the sacrifice would be worth it, the choice would always end up with one who has the lesser salary giving up his career to stay at home. For example, this can be the wife. She could stay and work at home if she chooses to, in order to earn some sort of income for herself and share in the expenses at home. However, she would have no 401(k) benefits and no retirement savings for now.

But the good news is, the working partner, her husband, could volunteer to pay for the contribution for an Individual Retirement Account of his spouse. This kind of contribution is called spousal IRA.

Spousal Ira could only be done when the two parties are legally married. Here, they must file a joint income tax return with the working spouse having a taxable income for the year, and the non-working spouse, if ever she has a taxable income working from home, her income must be lesser than the working spouse’s income. Getting a spousal IRA for the partner who stays at home is important, so that the one who stays at home, giving up her career for their child’s sake, will also have a sense of security later on, come retirement age.

The benefits of having an individual retirement plan or IRA is that people having that will be able to set aside some amount with compounding interest throughout the years that they could later on withdraw when they reach the age of 59 1/2. This could amount to something that would give them some sort of security or financial freedom at that age, and they would be able to do some of the things that they want to accomplish or dream about like travel or moving to another state later on.

The difference between an Ira and a 401(k) benefit is that the 401(k) benefit is salary deductible and usually, the employer shares in that contribution. However, for the Ira, the couple are the ones paying the contribution out of their salaries without any contribution from the employer. Both are tax-deferred, incurring only taxes at the time of withdrawing the money at age 59-1/2.

People who wish to get the 403 plan normally have a few choices to go for when it comes to the kind of assets that their employees can endow into their personal accounts. This includes the following:

• Tax Deferred Annuities, otherwise the Tax-Sheltered Annuities. These refer to the kind of annuity contract given by insurance companies in order to give income later on in life.
• A custodial account at the right institutions like the brokerage firm that possess the securities enjoyed by registered investment companies like mutual funds. Basically, this is the most frequently understood kind of 403 retirement plan.
• A plan that enlists either kind of investment preference as an option for the owners; that is, they are allowed to invest in eligible annuities or in securities like no load mutual funds.

When talking about the benefits given by the 403 retirement plan, it is safe to say that everything is just like what the 401k plan has to offer. First of all, it provides the ability to attract as well as retain employees because it offers matching benefits. A good example of this is that a company can endow the ability to match the contributions of employees to the 403 plan during the first 3 percent of the payroll.

Furthermore, the money in this plan can grow tax deferred for years which may even continue to decades which result to more savings for the account owner. It is only that time when the person who owns the account starts to make withdrawals from their account that they will have to pay the taxes on the funds.

Also, the account owner can get loans against their 403 retirement plan in case they found themselves in an emergency situation wherein they badly needed the cash to spare. The loan must be paid in return; this is the same with the regulation imposed by the 401k counterpart. If loan is not paid, significant tax consequences will be imposed.

When talking about the contribution limit of this plan, the government actually gives a high contribution limit for people who wish to get this. The ceiling potential contribution would equal to $49,000 each year for the fiscal year of 2009 as long as the person can meet all of the conditions imposed.

At the age of 59.5 years old, the person can start to get 403 withdrawals without any penalty. There is just a need to pay for regular income taxes. In case a person is younger that the said age, he or she will be subjected to 10% tax penalty. There is however a chance to prevent this penalty, a person just needs to meet the special consideration imposed by the law for early withdrawal penalty exemption.

When you own a business, SEP IRAs should be established separately by you and any eligible employee. The employer’s contributions are then made into each eligible employee’s retirement plan.

If you are looking for an easy and low-cost retirement plan, SEP could be the answer. SEP can actually provide you a great source of income when your retirement comes. You are allowed to save money in your retirement account.

Under SEP, the employer contributes directly to traditional Individual Retirement Accounts (SEP IRA) for both the employer and the employees. SEP doesn’t have a start-up and operating costs of a conventional retirement plan. A contribution of up to 25% of each employee’s is allowed.

What are the advantages of a SEP?

• SEP contributions are tax-deductible. Your business will pay no tax on the investments’ earnings.
• You are not obliged to make annual contributions. Actually you can decide each year whether you would contribute and how much you would.
• No documents are needed to be filed with the government.
• Sole Proprietorships, partnerships, and corporations are allowed to set up SEP IRA.
• You are eligible for a tax credit of up to $500 for each year of the first three years. This is for the cost of starting the plan.
• The costs for the administrative are relatively low.

In establishing a SEP, there are few easy steps to follow.

• Get in touch with a professional or a representative of a financial institution that do offer retirement plans. Choose IRS model of SEP (form 5305-SEP).
• It can be established until as late as the due date, including the extension period of the company’s income tax return for the year that you want to establish the plan.
• You need to choose a financial institution for your SEP, this is important. Usually SEP IRA trustees are banks, mutual funds, insurance companies that issue annuity contracts and other financial institutions that have been approved by the IRS.
• Fill up and sign the form 5305-SEP. When done, the form becomes the basic legal document of the plan. Don’t send it to the IRS but instead you just use it as reference since the plan’s terms are in that document.
• Render a copy of the form 5305-SEP (or any other plan documents) to your employees, including its instructions along with information regarding SEP IRAs.
• The SEP model will not be considered adopted until each of the employees are provided with a written statement. This written statement should explain that
  • A SEP IRA may provide different rates of return. It contains different terms than the other IRAs they may have.
  • The SEP’s administrator will provide a copy of any amendment within 30 days of the effective date, in conjunction with a written explanation of its effects.
  • The participating employees will be receiving a written report of employer contributions made to SEP IRAs by the end of January of the following year.