With an SEP IRA, you can take advantage of company contributions and accumulate tax-deferred earnings.
A Simplified Employee Pension (SEP) IRA is ideal for self-employed individuals and for small businesses, including nonprofit organizations and owners who want to offer a retirement package without the requirements of more complex plans. Employers make tax-deductible contributions to an employee’s SEP IRA, but employees themselves do not make contributions.
How does an SEP IRA work?
- The employer must complete and sign a 5305-SEP agreement by the tax return date (plus extensions).
- Employer must give each employee a copy of the agreement and any other pertinent information.
- All eligible employees must open an SEP account at their financial institution of choice.
- Employer will decide annually what percentage of the employee's income to contribute.
- Maximum contribution cannot exceed 25 percent of employee's income (up to $53,000 for the 2015 tax year or $52,000 for the 2014 tax year).
- All contributions must be made by the employer's tax return due date (plus extensions).
- Contributions can be made on behalf of an eligible employee after age 70½.
- Traditional IRA distribution rules apply.