SEP IRAs Tutorial
  1. SEP IRAs: Introduction
  2. SEP IRAs: Eligibility Requirements
  3. SEP IRAs: Contributions
  4. SEP IRAs: Distributions
  5. SEP IRAs: Conclusion

SEP IRAs: Introduction

By Denise Appleby

What Is a Simplified Employee Pension (SEP) Plan?
An SEP is a retirement plan established by employers, including self-employed individuals (sole proprietorships or partnerships). The SEP is an IRA-based plan to which employers may make tax-deductible contributions on behalf of eligible employees, including the business owner. The employer is allowed a tax deduction for plan contributions, which are made to each eligible employee's SEP IRA on a discretionary basis. (For background reading, see What is the difference between a Roth, SEP and Traditional IRA?)

Employees do not pay taxes on SEP contributions. However, distribution of these amounts, plus any earnings are taxed An employee (including the business owner) who is eligible to participate in his or her employer's SEP plan must establish a Traditional IRA to which the employer will deposit SEP contributions. Some financial institutions require the Traditional IRA to be labeled as an SEP IRA before they will allow the account to receive SEP contributions. Others will allow SEP contributions to be deposited to a Traditional IRA regardless of whether the IRA is labeled as an SEP IRA. Because the funding vehicle for an SEP plan is a Traditional IRA, SEP contributions, once deposited, become Traditional IRA assets and are subject to many of the Traditional IRA rules, including the following:

  • Distribution rules
  • Investment rules
  • Contribution and deduction rules for Traditional IRA contributions. These apply to the employee's regular IRA contributions, not the SEP-employer contributions.
  • Documentation requirements for establishing an IRA. In addition to the documents required for establishing an SEP plan (discussed later), each SEP IRA must meet the documentation requirement for a Traditional IRA.
(These rules are explained in the tutorial Traditional IRAs.)

SEP IRAs: Eligibility Requirements

  1. SEP IRAs: Introduction
  2. SEP IRAs: Eligibility Requirements
  3. SEP IRAs: Contributions
  4. SEP IRAs: Distributions
  5. SEP IRAs: Conclusion
RELATED TERMS
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  2. Individual Retirement Account - IRA

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  3. Traditional IRA

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  4. IRA Plan

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  5. Savings Incentive Match Plan For Employees Of Small Employers - SIMPLE

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RELATED FAQS
  1. How does a Simplified Employee Pension (SEP) IRA work?

    Learn about a Simplified Employer Pension, or SEP, IRA and how it works, who participates and what advantages it has over ... Read Answer >>
  2. Is a Simplified Employee Pension (SEP) IRA tax deductible?

    Learn everything you need to know about your SEP IRA, including the benefits to employers and whether or not a SEP IRA is ... Read Answer >>
  3. What are the main differences between a Simplified Employee Pension (SEP) IRA and ...

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  4. When are Simplified Employee Pension (SEP) IRA contributions due?

    Read this article to learn more about the April 15 SEP IRA contribution deadline date and how tax-filing extensions affect ... Read Answer >>
  5. Can a simplified employee pension (SEP) IRA be converted to a Roth IRA in the same ...

    Yes. An SEP IRA can be converted to a Roth IRA.As you may know, an SEP IRA is just a Traditional IRA that receives employer ... Read Answer >>
  6. Can I contribute to both a SEP IRA and a regular IRA?

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