SEP-IRA

SEP-IRA

A Simplified Employee Pension Individual Retirement Arrangement (SEP IRA) is a variation of the Individual Retirement Account used in the United States. SEP IRAs are adopted by business owners to provide retirement benefits for the business owners and their employees. There are no significant administration costs for self-employed person with no employees. If the self-employed person does have employees, all employees must receive the same benefits under a SEP plan. Since SEP accounts are treated as IRAs, funds can be invested the same way as any other IRA.

For a detailed reading on SEPs, see IRS Pub 560.

Deadline for Establishment and Contributions:
Filing deadline for employer's tax return, including extensions.

Employee eligibility conditions may not be any more strict than (i.e. can be less strict):
1) be at least 21 years of age
2) has worked for the employer for at least three of the previous five years, and
3) received at least $500 in compensation for the tax year

must be eligible for the employer's SEP-IRA plan.

SEP-IRA funds are taxed at ordinary income tax rates when qualified withdrawals are taken after age 59 and a half (the same rule as for traditional IRAs). Contributions to a SEP plan are deductible; they will lower a taxpayer's income tax liability in the current year.