A simplified employee pension (SEP) is an individual retirement account (IRA) that an employer or a self-employed person can establish.

Similar to 澳洲幸运5官方开奖结果体彩网:qualified retirement plans, contributions to a SEP are made with pretax earnings, and all investment growth in the account is tax-deferred. However, unlike traditional retirement plans such as 401(k)s, SEP IRAs are easier to set up and operate. They provide employers with greater flexibility and come with lower administrative costs, making them a preferred choice for small businesses.

Notably, contributions to a SEP IRA are made entirely by the employer. Employees cannot contribute to a SEP IRA, but they may open their own 澳洲幸运5官方开奖结果体彩网:Traditional or Roth IRA and contribute up to the annual limits. SEP contributions must be made by the tax filing deadline for the year they are made. Here is a closer look at SEP IRAs, how contributions work, and when they are due.

Contribution Deadline for SEP IRAs

Employer contributions to a SEP IRA are made in 澳洲幸运5官方开奖结果体彩网:tax-deductible dollars. Business owners, including the self-employed, can also open a SEP IRA account and contribute to their own retirement savings.

In either case, the deadline is the same. Contributions must be deposited into every employee's SEP IRA account by that year's tax filing deadline, which is typically April 15 of the following year.

If the employer has filed an 澳洲幸运5官方开奖结果体彩网:extension, then the final SEP IRA contribution date is the extension deadline, which is usually Oct. 15.

For example, say John earns $50,000 a year at XYZ Corp. The company wants to contribute 15% of each employee's compensation to their SEP IRA accounts in 2023. This means that John will receive a $7,500 contribution to his SEP IRA for 2023.

In a normal year, XYZ Corp. would have until April 15 of the following year to contribute to the employee SEP IRA acc🐽ounts. If XYZ has filed a tax-filing extension until Oct. 15, then the contributions must be made for John and all other employees by that date.

SEP IRA Contribution Limits

One of the advantages of a SEP IRA is that it has much higher contribution limits than a traditional or Roth IRA. The annual 澳洲幸运💃5官方开奖结果体彩网:contribution limit for a traditional or Roth IRA is $6,500 in 2023 (increasing to $7,000 i🔴n 2024), plus $1,000 for t✨hose aged 50 or older.

With a SEP IRA, in 2024, an employer can contribute as much as 25% of an employee's gross annual salary or $69,000, whichever is less. This is an increase from the $66,000 limit for 2023. To determine their contribution limits, self-employed business owners in 2024 must use a special computation that factors in the deductible portion of their self-employment tax.

With a 401(k), employers may match a percentage of the employee's contribution. However, in a SEP IRA, not only is the contribution entirely made by the employer, but the amount and the decision to make it can also vary from year to year.

In effect, this makes it a kind of profit-sharing plan. When business is great, the employer may 🃏make a generous contribution, as much as 25% of each employee's salary. When business is bad, the employer may reduce or eliminate the company contribution.

This is not a 澳洲幸运5官方开奖结果体彩网:bonus plan, though. If an employer has a SEP IRA, an identical percentage of salary must be deposited for each eligible employee.

The Bottom Line

A SEP IRA provides employers with a flexible way to offer a retirement plan for their employees. Employers are responsible for making contributions, with the ability to adjust the amount each year based on financial circumstances. Contributions must be made by the tax filing deadline of the following yea♐r🅷, making it a practical option for those seeking to balance employee benefits with financial flexibility.