SEP IRA

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.