Simplified Employee Pension IRA (SEP IRA)
SEP IRA is a variation of the Individual Retirement Account used in the United States. SEP IRAs are adopted by business owners to provide retirement benefits for themselves and their employees. There are no significant administration costs for self-employed person with no employees. If the self-employed person does have employees, all employees must receive the same benefits under a SEP plan. SEP IRAs are a type of IRA, therefore funds can be invested the same way as most other IRAs.
The deadline for establishing the plan and making contributions is the filing deadline for the employer’s tax return, including extensions.
SEP IRA Basic Eligibility Guidelines
- attained age 21
- have worked for the employer in three of the previous five years
- have received at least $600 in compensation for the tax year (2015)
SEP IRA Contribution Limit
An employer may contribute up to 25% of an eligible employee’s compensation for a year, provided the contribution does not exceed $55,000 (indexed) for 2018. Employee compensation in excess of the compensation cap of $275,000 (indexed) for 2018, is not considered when calculating SEP contributions. The compensation cap is the maximum compensation that may be considered for employer-plan purposes.
An employer is eligible to receive a tax deduction for contributions made to the plan, within established IRS regulatory limits.
Types of Contributions for SEP IRA
SEP IRA investment choices are limited to what a custodian makes available to you. Legally, however, SEP IRAs have the option of offering the following types of investments:
- Individual stocks
- Individual bonds (corporate and government)
- Mutual fund shares
- Exchange Traded Funds (ETF) shares
- Certificates of Deposit (CDs)
- Real Estate
- Precious Metals Bullion
Some SEPs allow for precious metals or other commodity investments. In these circumstances, SEPs represent one of the very few ways to hold real gold, silver, platinum or palladium in an investment account.