When are Simplified Employee Pension (SEP) IRA contributions due?
A SEP IRA, also known as a simplified employee pension plan, is an investment vehicle that allows business owners to contribute up to 25% of an employee's compensation or $52,000 a year, whichever is less, to their employees' retirement savings plans. This contribution must be made by April 15. Business owners can also open a SEP IRA account to invest in their own retirement savings plan. The cash contributions are deposited into an employee's individual retirement account, also known as an IRA account or an annuity.
Employer contributions must be deposited into all employee's SEP IRA accounts by that year's tax-filing deadline, which is typically April 15 of the following year. But if the employer has an extension, then the final SEP IRA contributions date is the extension deadline date, which is usually Oct. 15.
For example: John earns an average of $50,000 a year at XYZ Corporation. The company wants to contribute 15% of each employee's compensation into their SEP IRA accounts in 2014. This means John will receive a $12,000 contribution to his SEP IRA for 2014. XYZ Corporation has until April 15, 2015, to make the contribution to the employee SEP IRA accounts. If XYZ has filed a tax-filing extension until Oct. 15, 2015, then all contributions must be made for employees by that date.
Please note that SEP IRA contributions can be made in cash only, not property. Also, contribution amount limits are subject to change annually, based on cost-of-living adjustments. Other than contribution limits, all other rules for a SEP IRA are the same as a traditional IRA. This includes investment, distribution, and rollover rules.