In general, catch-up contributions are not allowed for SEP IRAs because these plans require contributions to be made by employers only. Since catch-up contributions are made by the account-owning employee, they are not permitted.
However, some SEP plans may allow employees to make traditional IRA contributions, not salary deferrals, to the account rather than opening another IRA. In this case, employees can make their own contributions to the account, including catch-up contributions if allowable, up to the normal IRA contribution limit.
What Is an SEP IRA?
An SEP, or simplified employee pension, is a type of qualified retirement savings plan offered by employers for employees who meet certain age and employment criteria. Rather than each employee owning an account in a company-sponsored plan, such as a 401(k), each employee participating in SEP has her own individual retirement account (IRA). The employer then has the sole responsibility for making contributions to each employee's IRA.
Like other retirement plans, the IRS imposes strict regulations regarding acceptable contribution limits. In 2015 and 2016, SEP contributions to each employee's account cannot exceed 25% of employee compensation, or $53,000, whichever is less.
Under the terms of more common retirement savings plans, which provide for contributions by the account owner herself, the IRS allows plan participants over the age of 50 to make annual catch-up contributions to bulk up savings in the years leading up to retirement. For 2015 and 2016, the annual catch-up contribution limits for 401(k), 403(b) and SARSEP plans is $6,000. For self-directed IRAs, the limit is $1,000.
Exception to the Rule
Both the sponsoring employer and the financial institution administrating an SEP IRA have an impact on the specific terms of the plan. Some plans provide the option of making individual contributions to an SEP IRA. In this case, your contributions are not salary deferrals and have no impact on the amount your employer contributes. Instead, you can contribute to your SEP IRA at your discretion as frequently or infrequently as you choose, just as you would to a self-directed account.
If your SEP IRA provides this option, then your individual contributions are subject to the same limitations as any other traditional or Roth IRA. If you are over 50, you are eligible to make the maximum annual contribution of $6,500, which includes the additional $1,000 allowable catch-up payment.