Learn More About SEP IRAs with Westminster Wealth Management
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A Simplified Employee Pension (SEP) IRA functions very similarly to a Traditional IRA, with some exceptions. A SEP IRA can be thought of as an IRA for a small business owner. Like an IRA, contributions to a SEP are tax deductible. SEP IRA’s often have higher contribution limits than a Traditional IRA. Contributions can be made up to the LESSER of 25% of employee’s compensation or $61,000. Also like an IRA, distributions from a SEP are fully income taxable. SEP IRA’s are most often used by sole proprietors or small businesses, as it’s one of the most efficient ways for those individuals to save the most amount of money towards retirement. SEP’s usually have lower costs to establish than 401k’s or other employer sponsored plans.
To be eligible for a SEP IRA, an employee must be at least 21 years old, have been with the company for 3 years, and have at least $650 of compensation. There is no rule that an employer MUST contribute to employees’ SEP IRA’s. Rollover rules for a SEP are very similar to rollover rules of a Traditional IRA. Funds from a SEP can be rolled into a traditional IRA. SEP IRA’s have a vast amount of investment options, like traditional IRA’s. Unlike a 401k, no loans can be made from an employee’s account. While that isn’t EVERYTHING there is to know about SEP’s, hopefully it’s a good start. If you have further questions, feel free to contact us!