9 Reasons Why a SEP IRA is Ideal for Filmmakers

For filmmakers, it’s harder than ever to retire with a secure financial future. Traditional retirement plans may not work well for your unique needs, and might not be available anyways. A Simplified Employee Pension (SEP) IRA provides a flexible and powerful solution. In this article, we’ll explore what a SEP IRA is and why it’s a great choice for filmmakers in particular.

What is a SEP IRA?

A SEP IRA is a retirement savings plan designed for self-employed individuals, freelancers, and small business owners. It allows you to make tax-deductible contributions to your retirement fund. When you contribute to a SEP IRA, your money is placed in an investment account that you control. You can choose from a wide range of investment options, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), and more.

SEP IRAs have advantages over other retirement plans. They have high contribution limits and a flexible contribution schedule. They are also easy to set up and maintain. These features let you save more for retirement and adjust your contributions based on your income. You can also customize your retirement portfolio to match your goals and risk tolerance.

Why a SEP IRA is a Great Choice for Filmmakers

1. Flexibility for Irregular Income: The film industry is known for its fluctuating income streams. A SEP IRA accommodates this by allowing you to make larger contributions during high-earning years. Likewise, you can make smaller or no contributions during leaner times. This flexibility ensures that you can save for retirement without straining your finances during slower periods.
2. High Contribution Limits: SEP IRAs have much higher annual contribution limits compared to traditional or Roth IRAs. As of 2024, you can contribute up to 25% of your net self-employment income or $69,000, whichever is less. This means you can easily catch up to your retirement goals when your income allows, such as after releasing a multi-year film project.
3. Tax Benefits: Contributions to a SEP IRA are tax-deductible. This means that you can reduce your tax liability during high-income years.
4. Easy Setup and Maintenance: SEP IRAs are simple to establish and maintain. This is particularly beneficial for self-employed filmmakers who may not have the time or resources to navigate complicated options.
5. Diverse Investment Options: With a SEP IRA, you have a wide range of investment options available, including stocks, bonds, mutual funds, and ETFs. This flexibility allows you to tailor your retirement portfolio to your specific goals and risk tolerance. In contrast, corporate 401k plans tend to restrict the employee’s ability to select specific investments.
6. No Regular Contribution Requirements: Unlike some other retirement plans, SEP IRAs don’t require regular contributions. This means you can adapt your savings strategy to your unpredictable lifestyle and work schedule. You can contribute more in good years and less in lean years.
7. Combining with Other Retirement Accounts: You can open and contribute to a SEP IRA even if you have other retirement accounts, such as traditional or Roth IRAs. This allows you to diversify your retirement savings strategy across multiple account types.
8. Employer Contributions: If you have employees, you can contribute to their SEP IRAs as an employer. This can be a valuable tool for attracting and retaining talent in your filmmaking business.
9. Simplified Estate Planning: With many brokerage accounts, you can register named beneficiaries for inheritance. This feature avoids probate and doesn’t require engaging an estate attorney to modify a will.

Requirements, Eligibility, and Deadlines

To be eligible for a SEP IRA, you must meet the following criteria:

1. Self-employed or small business owner: You must be self-employed, a freelancer, or a small business owner with few or no employees.
2. Earned income: You must have earned income from self-employment or your business.
3. Consistent contributions for eligible employees: If you have employees who meet certain requirements (e.g., are 21 or older, have worked for you for three of the past five years, and have earned at least $750 in 2023), you must contribute to their SEP IRAs at the same percentage as your own contributions.

For SEP IRA contributions, you have until the due date of your tax return (including extensions) to make contributions for the prior year. For example, if you’re filing as a sole proprietor and your tax return is due on April 15, 2024, you have until that date to make your 2023 SEP IRA contributions.

Once you reach age 72, you it is neccessary to start taking annual minimum distributions (RMDs) from your account. These distributions are ordinary income for tax purposes. There are penalties for failing to take RMDs.

For more information on SEP IRAs, visit the IRS SEP IRA page.

Conclusion: Ideal for Irregular or Project-Based Income

For filmmakers and other creative professionals, a SEP IRA offers unparalleled benefits compared to other retirement plans. They have high contribution limits, flexibility, and easy management. A SEP IRA can help you secure your financial future while navigating the unique challenges of your industry.

A SEP IRA is just one part of a comprehensive retirement planning strategy for filmmakers. For a more in-depth look at the steps you can take, read our article, Retirement Planning for Creative Professionals: 5 Steps toward a Secure Future.

At Magnifina, we specialize in providing tailored financial advice for creative professionals. Our experienced advisors are here to help you harness the power of a SEP IRA. We’ll work with you to ensure that you’re on the path to a comfortable retirement. Contact us today to learn more and start building your retirement savings. We look forward to helping you achieve financial success.