SEP IRA

A SEP IRA (Simplified Employee Pension Individual Retirement Arrangement) is a type of retirement plan that’s especially popular with self-employed individuals and small business owners due to its simplicity and high contribution limits.

Key Features of a SEP IRA:

• Who can set one up:
  • Sole proprietors, partnerships, corporations, and S corporations.
  • Employers can set one up for themselves and their employees.
    
    
• Contribution Limits (2025):
  • Up to 25% of compensation, or $69,000, whichever is less.
  • Employees cannot contribute to their SEP IRA — only employers can.
    
    
• Tax Advantages:
  • Contributions are tax-deductible for the employer.
  • Funds grow tax-deferred until withdrawn in retirement.
    
    
• Flexible Contributions:
  • You’re not required to contribute every year.
  • You can decide how much to contribute based on your business's performance.
    
    
• Eligibility Rules: Employees must be at least 21, have worked for the employer in at least 3 of the last 5 years, and earned at least $750 (2024 limit; may adjust yearly).
  
  
• Setup Deadline: Can be opened and funded as late as the employer’s tax-filing deadline (including extensions).
  
  
• Withdrawals: Same rules as traditional IRAs: penalties and taxes apply if you withdraw before age 59½, with some exceptions.