This question came in to me via Single Edition, a website I contribute to.
I recently launched my own business and have been told to set up a S.E.P IRA account. Can you explain what this is and why it is recommended for independent business consultants?
A SEP IRA is a retirement account for self-employed professionals and business owners. For 2008, you are eligible to contribute up to 25% of your adjusted gross income with a cap of $46,000. One of the great benefits of a SEP IRA is that the money goes in pre-tax, grows tax deferred and you are eligible to save much more than if you had a 401(k). It is important to note that the SEP IRA is just an account; you still have to pick investments (particularly mutual funds) for it. If you are just getting started, a Target Date Retirement Mutual Fund is a great place to start. Just pick one based on the year you would like to retire.
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