SEP IRA (Simplified Employee Pension IRA) Flashcards
What does SEP IRA stand for?
Simplified Employee Pension Individual Retirement Account.
Who can establish a SEP IRA?
Self-employed individuals and small business owners (including sole proprietors, partnerships, and corporations).
Who can contribute to a SEP IRA?
Only the employer—employees cannot make contributions.
Are SEP IRA contributions mandatory every year?
No, contributions are flexible and can vary or be skipped depending on business revenue.
What is the maximum employer contribution for a SEP IRA in 2024?
Up to 25% of an employee’s compensation or $69,000, whichever is lower.
Can employees contribute to their own SEP IRA?
No, only the employer makes contributions. Employees cannot make their own contributions.
How are SEP IRA contributions calculated for self-employed individuals?
For sole proprietors, contributions are based on net earnings after deducting self-employment taxes.
Can the employer contribute different percentages for different employees?
No, the employer must contribute the same percentage of compensation for all eligible employees.
Are SEP IRA contributions tax-deductible?
Yes, employer contributions are tax-deductible as a business expense.
When can SEP IRA funds be withdrawn without penalty?
After age 59½. Withdrawals before then may be subject to a 10% early withdrawal penalty.
Do SEP IRAs have required minimum distributions (RMDs)?
Yes, RMDs must start at age 73 (as of 2024).
Does a SEP IRA require annual IRS filings by the employer?
No, unlike a 401(k), a SEP IRA does not require Form 5500 or other annual filings.
Can an employer offer both a SEP IRA and a 401(k)?
Yes, but total contributions across all plans must stay within IRS limits.
What is the main advantage of a SEP IRA compared to a traditional IRA?
Higher contribution limits and employer-funded retirement savings.
Who holds and manages SEP IRA funds?
Each employee owns and controls their own SEP IRA, choosing investments through a financial institution.
