Anyone, and I mean anyone, can become an IRA millionaire if given enough time. According to Fidelity, the number of IRA millionaires on its platform has grown 40% over the past year. That figure doesn’t include all retirement account millionaires (those combining assets in retirement accounts).
Becoming a SEP-IRA millionaire may be easier than becoming a 401(k) millionaire. However, you will need to have self-employment income to contribute. Keep reading as we share the reasonably easy steps to put yourself on the path to becoming a SEP-IRA millionaire.
1) Be Self-Employed And Pay Yourself
To become a SEP-IRA millionaire, you need to be eligible to contribute to one. For most people, this means owning a business, being self-employed, or being an independent contractor with income paid via 1099.
2) Open A SEP-IRA Account
For many, the biggest hurdle to becoming a SEP-IRA millionaire is simply getting started. This is a relatively easy process that involves a bit of paperwork. It gets even easier if you have a tax-planning-focused financial planner who takes care of opening the account for you.
If you are self-employed, take the time to set up a SEP-IRA or Solo 401(k) for your business. If you make more than $500,000 per year, consider also setting up a cash balance pension plan for even more tax savings.
3) Contribute Enough Money To Your SEP-IRA
The third step toward becoming a SEP-IRA millionaire is determining how much money to contribute. Below, we will share some math for building a millionaire retirement account. A rough rule of thumb is to save at least 10% of your salary. If you start late or want to become a SEP-IRA millionaire more quickly, you must contribute even more.
The tax benefits of contributing to a SEP-IRA can help you make even larger contributions each year. You will not owe income taxes on the amount you contribute to your SEP-IRA each year. The maximum SEP-IRA contribution for tax year 2023 is $66,000. The SEP-IRA contribution limit for 2024 is $69,000. Remember that your maximum SEP contribution each year will depend on your business income.
4) Invest Your SEP-IRA Contributions
Becoming a SEP-IRA millionaire without contributing $1 million into your retirement account will require investing your funds. Compounding interest can help your money grow even faster.
If you want to do it the slow and hard way by contributing $22,500 per year to your SEP-IRA and just having it sit there, it will take around 45 years. Assuming a 10% return on your investments, it would take 18 years with the same $22,500 yearly contribution.
If you were able to make the current maximum $69,000 contribution to your SEP each year, it would take just under 10 years to become a SEP-IRA millionaire.
5) Take The Time To Become A SEP-IRA Millionaire
Becoming a SEP-IRA millionaire takes time. There are annual contribution limits to your retirement accounts, so at a minimum, we are talking about a few years for anyone to become a SEP-IRA millionaire. Here are some rough calculations to become a SEP-IRA millionaire, depending on how long you have to reach this big milestone. We are assuming an eight-percent return on your retirement account investment.
Forty-eight years requires about $170 per month.
Thirty years requires about $735 per month.
Twenty years requires about $1,821 per month.
Ten years would require about $5,755 per month.
Five years require about $14,205 per month (which is above the contribution limits.)
As you can see, the earlier you start investing for retirement, the easier it will be to become a SEP-IRA millionaire.
6) Don’t Make The Mistake Of Raiding Your SEP-IRA
Following these five steps should have you well on your way to becoming a SEP-IRA millionaire. However, if you make the mistake of raiding your investments before retirement, you will significantly reduce your chance of achieving financial freedom. You will also get hit with taxes and penalties on withdrawals. Not raiding your SEP-IRA when times get tough is essential to accumulating enough assets to maintain your standard of living in retirement.
Follow these simple steps, and you should be on your way to becoming a real-life retirement account millionaire. While a million-dollar balance in your SEP-IRA is a huge accomplishment, most people reading this post will likely need to accumulate even more retirement assets to have the retirement they dream of. Work with your fiduciary financial planner to determine your financial freedom number.
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