A SEP (Simplified Employee Pension) IRA (Individual Retirement Account) is a variation of the Traditional IRA in which you, the employer, make annual contributions to the account. These contributions must be equal to all participating employees.
Some additional features of the SEP IRA include:
- contributions are tax-deferred
- annual contributions are discretionary and are tax-deductible to the employer
- 100% immediate vesting
- any earnings grow tax-deferred until withdrawn
- fewer administrative requirements than qualified plans
Employer must include all employees who:
- are a minimum age of 21
- have worked for your company for any three of the immediate past five years
- earned at least $650 in compensation in 2022
The maximum employer contribution for a SEP IRA is the lesser of 25% of total compensation or $61,000 (for 2022) as indexed thereafter per participant (approximately 20% if self-employed). In addition, there is a uniform contribution rate for employees and the employer.