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Simplified Employee Pension IRA
SEP IRAs benefit self-employed individuals and small-business owners, and have a number of advantages over other retirement plans, including:
- SEP IRAs are easy to establish and maintain.
- There are no mandatory contributions or annual tax filings.
- Reduced paperwork.
- In addition to potential tax credits, tax-deductible contributions can help decrease current taxes, and tax-deferred compounding can help both employers and employees build retirement assets. Consult your tax advisor for additional information.
SEP IRAs are available if you have income from being self-employed either full- or part-time, or if you are an employee of someone who establishes a SEP IRA for their employees, including:
- Sole proprietors
- Partners
- Business owners (of either an unincorporated or incorporated business, including Subchapter S corporations)
Contributions to a SEP IRA
All contributions made under a SEP IRA are employer contributions. An employee cannot defer a portion of his or her salary and contribute it to a SEP IRA. Employers may contribute up to 25% of an employee's compensation*.
- Employers are not required to contribute the same percentage of compensation every year — they may vary the percentage each year, or skip a year altogether. However, in any given year, an employer must contribute the same percentage of compensation for each eligible employee.
- SEP IRA contributions are reported on Form 5498 in the calendar year in which they are received. Please consult your tax advisor with any questions.
* Maximum compensation on which contributions can be based is $245,000 for the 2011 plan year. For self-employed individuals, compensation is your net earnings from self-employment. For further clarification contact your tax advisor.
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