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SEP-IRA

A SEP-IRA is one of the easiest small business retirement plans to set up and maintain. You can make sizable contributions for yourself and any eligible employees. There's little administration, and tax filing isn't required. And you can vary contributions from year to year—or even skip a year.

A Simplified Employee Pension Plan (SEP-IRA) is specifically designed for self-employed individuals and small business owners who want to save for retirement without getting involved in complex plan administration. If you are self-employed or have few employees, and if you want flexibility in the amount you contribute annually—particularly if you want to make high contributions—a SEP-IRA might be right for you.

How is a SEP-IRA funded?

  • A SEP-IRA is funded with employer contributions only. It does not need to be funded annually, but if you have employees and contribute for yourself, you must contribute for all eligible employees, including those who have terminated employment during the year. Full vesting is immediate.

What are the tax advantages of a SEP-IRA?

  • Employer contributions are tax-deductible. Earnings grow tax-deferred and are not taxed until they are withdrawn.

What are the SEP-IRA contribution limits?

  • You may contribute up to 25% of compensation (20% if you're self-employed4) or $58,000 for tax year 2021 or $61,000 for tax year 2022, whichever is less.

What is the contribution deadline for SEP-IRA?

  • A SEP-IRA can be opened and contributions made until the employer's actual tax-filing deadline, including any extensions.

What are the rules for withdrawing from a SEP-IRA account?

  • You can start making penalty-free withdrawals from your account after age 59½. If you do not start Required Minimum Distribution (RMD) withdrawals by age 70½  (if you were born before July 1, 1949) or age 72 (if you  were born on or after July 1, 1949),  or take less than the required amount, you will face a 50% penalty on the total amount of the distribution.

    There are certain exceptions for which you can withdraw funds before age 59½ without taking a 10% penalty, including a rollover to another IRA, some higher education expenses, qualified first-time home purchase expenses, death, disability, and certain medical expenses.