SEP IRA
(small business and self employed retirement plans)

What is a SEP IRA?

SEP IRA (Simplified Employer Pension Plan) retirement plans benefit self employed individuals and small business owners. A SEP IRA allows a contribution of up to 25% of compensation up to a maximum of $49,000 for 2009 ($46,000 for 2008). Employees do not contribute to a SEP IRA because they are 100% employer funded. In general, contributions into a SEP IRA are 100% tax deductible to the employer.

Investment earnings in a SEP grow tax deferred. Withdrawals after age 59 1/2 are taxed as ordinary income. If withdrawals are made prior to age 59 1/2 you may incur a 10% IRS penalty in addition to ordinary income taxes. Each eligible employee has their own separate SEP IRA account which is then funded by the employer. A SEP IRA may be a good option for employers who want to make high contributions to their own accounts and to the accounts of partners or eligible employees. A self employed individual with no employees other then a spouse may also want to consider an Individual 401k as well as a SEP IRA.

SEP IRA Eligibility

Incorporated and unincorporated businesses. Sole proprietors, partnerships, LLCs, Subchapter S and C corporations qualify. Also, individuals with self employed income may be able to contribute to a SEP even if they are already covered by a retirement plan (i.e. 401k or 403b) through their full time employer.

Tax Advantages

Contributions are generally tax deductible and investment earnings grow tax deferred.

Contributions

100% funded by the employer. Contributions to a SEP can be made between 0% to 25% of compensation up to $49,000 for 2009 ($46,000 for 2008). Contributions are flexible and the percentage of contribution can vary year to year depending on profitability. Contributions do not need to be made each year.

Learn more about a SEP IRA.

   Need Help or Advice?  |  Open a SEP IRA

Disclosures:

* The information on this page is for informational purposes only and does not constitute, and should not be construed as, professional, legal or tax advice. To determine your individual tax situation and specific needs, please consult a professional tax advisor.

* Information contained in these sections merely highlight some benefits. There are risks involved with all investments that could include tax penalties and risk/loss of principal.