A SEP IRA (Simplified Employee Pension Individual Retirement Account) is a retirement savings plan that allows self-employed individuals and small business owners to contribute tax-deductible contributions to their retirement account.
SEP IRA contributions are tax-deductible, meaning they can reduce your taxable income for the year in which you contribute. Additionally, SEP IRA contributions can grow tax-deferred until withdrawal, providing a potential source of retirement income.
As a freelancer, you are self-employed, and therefore eligible to open a SEP IRA account. SEP IRA contributions are also generally larger than traditional or Roth IRA contributions, as you can contribute up to 25% of your net earnings from self-employment—with yearly maximum limits.
In summary, a SEP IRA can be a great retirement savings option for freelancers as it provides a tax-advantaged way to save for retirement and allows for larger contributions than traditional or Roth IRAs. However, it’s important to note that there are other retirement savings options available, such as a Solo 401(k) or SIMPLE IRA, which may be more suitable for certain freelancers depending on their individual circumstances.