An SEP IRA (Simplified Employee Pension) provides business owners a simple method to contribute toward their employees’ retirement, as well as their own retirement savings.
- Earnings grow on a tax-deferred basis.
- Self-employed individuals can maintain an SEP even if they participate in a retirement plan provided by a second employer.
- Contributions by employers generally qualify as a business expense resulting in tax savings but are limited by annual income and compensation.
- An SEP IRA account follows the same investment, distribution, and rollover rules as traditional IRAs.
- Employees cannot make contributions to the SEP plan.
- 2018 Maximum Contribution for Employers: $55,000 or 25% of the employee’s compensation for 2018, whichever is less.
- Contributions are made to an Individual Retirement Account or Annuity set up for each plan participant.
- Contributions must be made by an employer’s tax-filing date, including extensions.
- Distribution is taxable and is required by April of the year after a participant becomes age 70½*.
An SEP IRA offers substantial financial benefits to business owners while helping employees plan for their retirement.
*There is a 50% excess accumulation tax on any required distribution not taken by the due date.
The above information is provided for educational purposes and is not intended as tax advice. Please consult a tax professional.