Payments made to a simplified employee pension (SEP) individual retirement account (IRA) are tax-deductible for employers or the self-employed, but there is an annual limit on contribut♕ions.

SEP IRAs are funded solely by an employer using tax-deductible dollars. For 2024, an employer can contribute up to 25% of an employee's compensation or $69,000, whichever is less. The account isn't tax-deductible for the employee, unless they are self-employed, but is funded with tax-deferred dollars.

What Is a SEP IRA?

A SEP IRA is a type of 澳洲幸运5官方开奖结果体彩网:traditional IRA available to self-employed individuals, freelancers, and small-business owners. Employees aren't able to contribute to a SEP IRA that the company opens on their behalf. Contributions come solely from the employer, and they aren't required to contribute every year.

When making SEP IRA contributions, employers are required to contribute an equal percentage of income for every employee. This applies to every employee who performed services during the year, even for employees who die or terminate employment before the contributions are made.

Additionally, 澳洲幸运5官方开奖结果体彩网:business owners who start up a SEP may be eligible for a tax credit of up to $5,000 per year for the first three years that the SEP account is open.

What Is the Eligibility for an Employer’s SEP?

Once a business owner has set up a SEP IRA, they must include all eligibleꦺ emp🅷loyees on the plan, who are defined as:

• Employees 21 or older, who
• Have worked for you for at least three of the past five years, and who
• Have earned at least $750 in income from your business for 2024
• Not having been paid more by the business than the 2024 maximum annual limit of $345,000

An employer could lower eligibility thresholds, for example, by lowering the age or minimum service requirements. However, the eligibility requirements must apply to everyone equally.

For individuals who aren't 澳洲幸运5官方开奖结果体彩网:self-employed, the compensation used to determine SEP IRA contributions includes wages, salaries, fees for professional services, commissions and tips, fringe benefits, and bonuses. Compensation generally includes amounts deferred, at the employee's election, under benefits plans such as 401(k) plans, 403(b) plans, SIMPLE IRAs, Section 澳洲幸运5官方开奖结果体彩网:457 plans, and Section 125 澳洲幸运5官方开奖结果体彩网:cafeteria plans.

Contribution Deadline and Withdrawals

The deadline for establishing a SEP IRA plan and making contributions is the filing deadline for the employer's tax return, including extensions. 澳洲幸运5官方开奖结果体彩网:Catch-up contributions aren't allowed in SEP IRAs, as they are made by individuals rather than employers.

SEP IRA contributions and earnings can be withdrawn at any time subject to the general limitations imposed on traditional IRAs. A withdrawal is taxable in the year received. If a participant makes a withdrawal before age 59½, a 10% additional tax generally applies. SEP IRA contributions and earnings may be 澳洲幸运5官方开奖结果体彩网:rolled over tax-free to other IRAs and retirement plans after two years of participation.

The Bottom Line

Small-business employers and others can deduct from their tax bill payments to a SEP IRA for one or more employees up to li𓆉mit amounts set by the IRS. Business owners who start a ཧSEP IRA also may be eligible for an annual tax credit, depending on how many of their employees participate.

These plans are funded solely by an employer using tax-deductible dollars, so employees can't contribute to one unless they are self-employed, but the contributions they receive are tax-deferred. For 2024, an employer can contribute up to 25% of an employee's compensation or $69,000, whichever is less.