What is a SEP IRA?
A SEP IRA (Simplified Employee Pension) is a simple, tax-deferred retirement plan for the self-employed. It’s also for business owners who employ others, and/or freelancers.
Who can participate?
Employers are usually the sole contributors; however, employees can also make contributions to the SEP.
Contributions by Employers
- Contributions are usually limited to 20% of the owners net income.
- Net compensation for self-employed individuals is typically the net profit from IRS Schedule C reduced by the deductible self-employment tax.
- Contributions are tax deductible, not required every year.
- Contributions need to be the same for both the employer and the employees.
- Contribution limits consist of, up to 25% of an employee’s total compensation.
Contributions by Employees
- Contributions to the SEP of up to $6,000 ($7,000 for employees age 50 or older). Check with the IRS tables for the exact amounts allocated for specific years.
- This amount is the total contribution allowed for employees to make to all their IRAs (SEP, traditional, or Roth) each year.
* See the IRS’s FAQ for details. Click Here.