Tags: Retirement | sep ira limits | contribution | differ | traditional ira

What Are the Contribution Limits for a SEP IRA? How Do They Differ From Traditional IRAs?

By    |   Tuesday, 28 Apr 2015 11:59 AM

A SEP (Simplified Employee Pension) IRA is a type program in which a business or self-employed individual can contributes to retirement. Similar to other IRAs, account holders don't pay taxes until they request funds after age 59 and a half.

As its name suggests, a SEP provides an easy method for employers to contribute to their own retirement accounts, as well as their employees'. Participants deposit to an individually generated IRA or Annuity, which adheres to the same investment, distribution, and rollover rules, according to IRS regulations.

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A unique set of contribution rules apply to SEP IRAs, which separates them from other IRAs.

With an SEP IRA, an employer contributes funds into an account for its employees, who are 100 percent vested in the assets. With other retirement plans like 401(k)s, employees are generally responsible to start with funds that are then matched to some degree by an employer.

The government also limits the amount that can be invested in a SEP IRA. As opposed to the $5,500 allowed with a traditional IRA (as of 2013), a business can contribute $53,000 in 2015, as long as that amount doesn't exceed 25 percent of the employee's annual compensation.

The same limits apply for those who are self-employed, though certain guidelines apply when calculating the maximum deductible contribution.

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If the SEP-IRA allows non-SEP contributions, one can make regular IRA contributions up to the maximum annual limit, but the regular IRA amount that can be deducted on an income-tax return may be lowered or eliminated due to participation in a SEP plan.

Since a SEP-IRA is a traditional IRA, contributors can make regular, annual distributions to this IRA without opening another account, though any monies deposited in a SEP-IRA will lower what can be given to other IRA accounts for that year, according to the IRS.

The IRS provides this example: "Nancy, age 45, is the owner and sole employee of JJ Investment Advisors. Nancy contributes the maximum allowable amount to her SEP-IRA for 2014, or $52,000. Nancy may also make regular, annual IRA contributions to her SEP-IRA, if her SEP-IRA allows this, or contribute to her Roth IRA at XYZ Investment Co. Her total traditional IRA and Roth IRA contributions cannot exceed $5,500 for 2014 and may be made in addition to her SEP contributions."

SEP investors aren't required to contribute each year, but must allocate funds to all eligible employees during years in which contributions are made.

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A SEP (Simplified Employee Pension) IRA is a type program in which a business or self-employed individual can contributes to retirement. Similar to other IRAs, account holders don't pay taxes until they request funds after age 59 and a half.
sep ira limits, contribution, differ, traditional ira
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2015-59-28
Tuesday, 28 Apr 2015 11:59 AM
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