Simplified Employee Pension Plan (SEP)
Simplified Employee Pension Plans (SEPs) are tax-deferred retirement accounts available to self-employed individuals, business owners, and others who make freelance income.
Concept Applied
A SEP IRA lets eligible workers accumulate retirement savings and defer all taxes until the money is withdrawn. Additionally, some IRA holders may qualify for a tax credit.
How It Works
Employers must have a SEP Plan established for employees to participate. The employer may require employees to be 21 prior to participation. Employees earning less than $650 in compensation may be excluded. The employer may also require an employee to work three out of the immediately preceding five years before receiving employer contributions.
Why Is It Useful?
SEP IRAs have the potential to have a much higher contribution limit than SIMPLE and Traditional IRAs. Similar to those counterparts, SEP IRAs offer the opportunity for greater savings through pre-tax contributions while providing increased earnings through tax-deferred growth potential.
CHARACTERISTIC
SIMPLE IRA
Tax Status
Tax-deferred
Who Contributes
Employer
Contribution Limit
Lesser of 25% of the employee's compensation or $69,000
Best For
Small business owners and those who are self-employed
Office of James Rockwell & Zach Carothers
106 West Main Street, Suite 2,
Grangeville, ID 83530
(208) 983-3027