The Simplified Employee Pension (SEP) Individual Retirement Account (IRA) provides self-employed individuals and small-business owners access to tax-deferred retirement savings plans that are easy to implement.
Best if you
- Are a sole proprietor, a business owner in a partnership or self-employed
- Want a simple way to contribute toward your employees' retirement as well as your own
- Prefer flexibility in how much you contribute in a given year
- Would benefit from lower costs for startup and operation of a retirement plan
- Can provide and contribute to SEP IRA accounts for your employees
- The plan is easy and inexpensive to set up and maintain
- Any size business may establish a SEP IRA
- Contributions are tax-deductible for employers
- Earnings grow on a tax-deferred basis
- Contribution limits are much higher than personal IRA accounts
- Employees may also contribute to a Traditional or Roth IRA
- Contributions can be up to 25% of participants’ net income or the designated annual cap, whichever is less
- Employers are not required to make regular contributions, but any contribution must be the same for all eligible employees
- For distributions, participants must be over age 59½, disabled, deceased or a first-time home buyer. There is a 10% penalty for withdrawals before age 59½. Minimum required distributions start at age 70½.
For your information
It may be helpful to be aware of additional benefits and requirements when deciding if the SEP IRA is right for you.
Did you know?
SEP IRAs have unique features that you won't find in other retirement plans.
- There are generally no annual tax filings.
- Employees are immediately and continuously 100% vested.
- A business may design its own SEP IRA or use the prototype plan available from the IRS.
- Employers may contribute until the business tax filing deadline for the year, including extensions.
When choosing a retirement plan, consider these requirements that are specific for the SEP IRA.
- To be eligible, employees must have worked at least 3 of the past 5 years for the employer.
- Only employers are allowed to make contributions.
- Catch-up contributions to a SEP IRA are not allowed.
- The IRS requires contributions to a SEP IRA to be reported for the year they are actually deposited to the account, regardless of the year for which they are made.
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