SEP IRA

The employer must meet the same eligibility requirements as the employees. The employer is only required to contribute for employees who:

• Are 21 years old or older.
• Have been employed by the employer for three of the last five years.
• Earned at least $750 (may be adjusted annually for inflation) for the current year.

The employer makes contributions directly to the IRA account of each eligible employee:

• The overall maximum contribution per eligible employee is the lesser of 25% of compensation or $69,000, based on the first $345,000 of compensation (for 2024 and indexed for inflation).
• The employer decides each year how much is contributed, if at all. Contributions made to participant accounts are nondiscriminatory as the same percentage is allocated to eligible participants’ accounts.
• Employer contributions must be made by the employer’s tax filing deadline (including extensions).
• Employees are not eligible to make salary deferral contributions.

Participant SEP IRA accounts are subject to the rules that govern regular IRA withdrawals and distributions.

Penalty-free rollovers are permitted in and out of the plan.

• Testing requirements: A top-heavy test must be performed to determine if the plan disproportionately benefits certain key employees. If the plan is top-heavy, the employer may have to contribute as much as 3% of annual compensation on behalf of all eligible workers who are not considered key employees.
• Filing requirements: SEP IRAs don’t require government filing, and there is no annual IRS reporting.

A Simplified Employee Pension (SEP) is a retirement plan the employer establishes and makes contributions on its employees’ behalf. With this type of retirement plan, the employer must contribute equally for all eligible employees into their individual retirement account (IRA).

A key difference between an IRA and a SEP IRA is who contributes to the account. A traditional IRA is funded by contributions made by the IRA owner and doesn't allow the employer to make contributions. In a SEP IRA, the employer makes discretionary contributions and deposits those employer contributions on behalf of eligible employees. A SEP IRA can also accept traditional IRA contributions funded by the employee.

Virtually all types of employers of any size may establish a SEP IRA plan, including sole proprietors, corporations, partnerships, tax-exempt organizations, and governmental entities.

Yes, the employee can contribute to both a SEP IRA and a Roth IRA. A SEP IRA can also accept traditional IRA contributions funded by the employee. To make Roth IRA contributions, the employee would need to establish a separate Roth IRA. As a reminder, any contributions made to an IRA (traditional or Roth) must be aggregated to ensure they don’t exceed the maximum IRA contribution limit for the year.

The employee can contribute to a SEP IRA by making traditional IRA contributions without opening a new traditional IRA account. The employee's contributions must be within the annual IRA limits. These contributions in the SEP IRA are separate from the employer contributions. Contributions can be sent via check or ACH.  Please contact Client Services at 800 959 4246 for additional details.