SEP IRA

For self-employed individuals or small-business owners, primarily with only a few employees.

Eligibility

Only the employer contributes to a SEP IRA; employees cannot make salary deferrals. Contributions are made directly by the business and must be made at the same percentage of compensation for all eligible employees, including the owner. The contribution limit is the lesser of 25% of compensation or the IRS maximum annual dollar limit. Contributions are discretionary and do not have to be made every year.

Contribution Limits

A self-employed 401 (k) plan allows for both employee salary deferrals and employer profit-sharing contributions, making it one of the most flexible and powerful retirement savings tools available to small business owners. Contribution limits are subject to annual IRS guidelines and may change from year to year. For the most current figures, refer to the IRS website on 401(k) and profit-sharing plan limits.

Tax Benefits

Employer contributions to a SEP IRA are tax-deductible as a business expense. Investments within the account grow tax-deferred, and taxes are not due until funds are withdrawn in retirement. SEP IRAs are considered traditional IRAs for tax purposes, so distributions are taxed as ordinary income. Early withdrawals before age 59½ may be subject to a 10% penalty.

Who contributes

Only the employer contributes to a SEP IRA. Employees cannot make their own contributions, but they do own and control their accounts once contributions are made. Contributions must be made at the same percentage of compensation for all eligible participants. There is no required annual contribution, offering flexibility for fluctuating income or business cash flow.

Withdrawals & Distributions

SEP IRA participants may begin taking withdrawals at age 59½ without penalty, although standard income tax applies. Early withdrawals are generally subject to a 10% penalty unless an IRS exception applies. Required Minimum Distributions (RMDs) must begin at age 72. There is no Roth option available for SEP IRAs.

Fees & Expenses

There is no cost to open or maintain a SEP IRA through Global Advisers. We provide professional investment management for an annual advisory fee based on assets under management. Additional brokerage or fund-level expenses may apply, depending on your selected custodian and investments.

Administrative responsibilities

SEP IRAs have minimal administrative requirements. Employers do not need to file IRS Form 5500 or conduct annual nondiscrimination testing. The employer must provide eligible employees with a copy of IRS Form 5305-SEP or a similar plan document and notify them annually of any contributions made to their accounts.

Deadlines

A SEP IRA can be established and funded as late as your business’s tax filing deadline, including extensions. This makes it a flexible year-end planning tool for maximizing deductions and retirement savings even after the calendar year has ended.