The development of 401(k) and IRA rules has caused a lot of changes in retirement accounts. There are now Roth SIMPLE and SEP IRAs, student loan matching contributions, and higher contribution limits. A SEP-IRA can be established by sole proprietors, partnerships, and corporations, including S corporations. The advantages of the SEP begin with the ability to contribute more than the traditional IRA contribution limit. Also known as a beneficiary IRA, an inherited IRA is an account that can be funded from any IRA, including traditional, Roth, SIMPLE and SEP-IRAs. The ability to do 529 plan to Roth IRA rollovers goes into effect January of 2021.
Before the passing of the Act, SIMPLE IRAs and SEP IRAs could not be designated as Roth IRA. This provision is in effect for taxable years beginning after December 31, 2020. One advantage to maximizing IRA contributions for the year is that SEP and SIMPLE IRAs have more generous 2022 contribution limits. The amount that can be contributed to a SEP IRA is 25% of the employee’s compensation, up to a maximum of $58,000, or $64,500 if the employee is age 50 or older.
The IRS has also increased the required minimum distributions (RMDs) age from 70 ½ to 72. This means that the investor must take RMDs, such as a traditional IRA, SEP IRA, or SIMPLE IRA, or an employer-sponsored retirement plan, such as a 401(k) plan, from age 72 to 73. This investor’s IRA contribution creates an income tax deduction for the current year and also postpones the taxation of any investment gains until the investor takes a distribution from the IRA.