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Simplified Employee Pension Plan

SEP-IRA

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A Simplified Employee Pension Plan (SEP or SEP-IRA) is a type of individual retirement account allows you to make contributions on behalf of each employee.

Employees must meet the following participation requirements:
The employee is at least 21 years old.
The employee has worked for the employer during at least three of the five years immediately preceding the current year.
The employee has received at least $450 in compensation from the employer in the current year.
 

SEP-IRA contributions by the self-employed persons. If you are self-employed and contribute to your own SEP-IRA, your contributions (as your own employer) are limited to a maximum of 20 percent of net earnings (instead of 25 percent of compensation). However, you can still make elective deferrals and catch-up contributions to get you to the contribution limit for the year. View SEP Contribution Limits.

SEP-IRA contributions by employees. Employees may also make additional contributions to their SEP-IRAs independent of the employer, but they are subject to the same restrictions imposed on traditional IRAs when contributions are simultaneously being made to a retirement plan.

Distributions from a SEP. Distributions from a SEP-IRA account are handled in the same manner as those for traditional IRA accounts.

How to set up a SEP. The most common place to set up a Simplified Employee Pension Plan is with a bank, brokerage firm, insurance company or other qualified financial institutions. SEP plans are easy to establish and administer and are not that much different from a traditional IRA. The deadline for setting up the SEP account is the due date of your tax return (including extensions).

Special considerations for employers with “leased employees.” If you have leased employees you MAY have to include them in your SEP plan
 

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