Thursday, March 9, 2023


A SEP IRA (Simplified Employee Pension Individual Retirement Account) is a type of retirement savings plan that is designed for small business owners and self-employed individuals. It allows for contributions to be made on behalf of both the employer and the employee, and it has relatively high contribution limits compared to other types of retirement plans. Some key things to know about SEP IRAs include:

  • Contributions: Employers can make contributions to a SEP IRA on behalf of their employees, and employees are not able to make contributions on their own. The employer contribution is limited to 25% of an employee's compensation or $58,000 for 2021 and 2022, whichever is less.

  • Eligibility: Any employee who is at least 21 years old and has worked for the employer in at least three of the last five years is eligible to participate in a SEP IRA.

  • Deductibility: Employer contributions to a SEP IRA are tax-deductible for the business.

  • Investment options: SEP IRA funds can be invested in a variety of options, including stocks, bonds, mutual funds, and ETFs.

  • Rollovers: Funds from other qualified retirement plans such as 401(k) and traditional IRA can be rolled over into a SEP IRA.

  • Deadlines: Employers are required to set up a SEP IRA plan by the due date of their tax return, including extensions.

  • Withdrawals: Withdrawals from a SEP IRA before age 59 1/2 may be subject to a 10% penalty in addition to income taxes. After age 59 1/2, you can withdraw funds without penalty, but you will have to pay income tax on the amount withdrawn.

  • RMDs: Required Minimum Distributions (RMDs) must begin at age 72.

  • Simplicity: One of the benefits of a SEP IRA is its simplicity, as it has fewer reporting and disclosure requirements than other types of retirement plans.

It's important to consult with a financial advisor or tax professional to determine if a SEP IRA is the right choice for you and your business. They can help you understand the specific rules and regulations of the plan, as well as help you to calculate the maximum contribution limits and make sure you are in compliance with the IRS rules.