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

By Denise Appleby

A Simplified Employee Pension (SEP) IRA is an IRA-based employer plan. A business owner who decides to adopt a SEP for his or her business will be solely responsible for funding the plan.

Let's recap:

  • Generally, any employee who is at least 21, earns at least $550 per year, and has worked three out of the five preceding years for the employer is eligible to participate in the employer's SEP Plan for the current year.
  • Any employer may establish an SEP plan. This includes sole proprietorships, partnerships, corporations and non-profit organizations.
  • An attractive feature of the SEP plan is that employees may use the same account to which SEP contributions are made for their regular Traditional IRA contributions.
  • Contributions to SEP IRAs are immediately 100% vested, which means employees may take the contributions at any time, regardless of whether or not the employee still works for the employer's business.
  • Because the funding vehicle for a SEP is a Traditional IRA, the distribution rules of a Traditional IRA also apply to SEP assets.

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