Editing SEP-IRA (section)

{{Short description|Type of retirement pension account used in the United States}}

A '''Simplified Employee Pension Individual Retirement Arrangement''' ('''SEP-IRA''') is a variation of the [[Individual Retirement Account]] used in the United States. SEP-IRAs are adopted by business owners to provide retirement benefits for themselves and their employees.<ref>{{Cite web|url=https://money.cnn.com/retirement/guide/selfemployment_sep_ira.moneymag/|title=What is a SEP IRA?|last=|first=|date=|website=money.cnn.com|publisher=|access-date=2016-09-02}}</ref> There are no significant administration costs for a self-employed person with no employees. If the self-employed person does have employees, all employees must receive the same benefits under a SEP plan. Since SEP-IRAs are a type of IRA, funds can be invested the same way as most other IRAs.

The deadline for establishing the plan and making contributions is the filing deadline for the employer's [[tax return]], including extensions.

The strictest conditions employers may place on employee eligibility are as follows. The employee must be included if they have:<ref>{{cite web|url=https://www.irs.gov/retirement-plans/plan-participant-employee/who-can-participate-in-a-sep-or-sarsep-plan|title=Who Can Participate in a SEP or SARSEP Plan?|publisher=[[Internal Revenue Service]]|date=November 23, 2020|access-date=February 21, 2021}}</ref>
# attained age 21
# worked for the employer in three of the previous five years
# received at least $650 in compensation for tax year 2021 ($600 for 2019 and for 2020)

Employers may use less restrictive criteria.<ref>{{cite web |url=https://www.irs.gov/Retirement-Plans/SEP-Plan-FAQs-Participation-Requirements |title=SEP Plan FAQs - Participation Requirements |date=2016-02-19 |publisher=Internal Revenue Service |access-date=2016-09-02}}</ref>

SEP-IRA funds are taxed at [[ordinary income]] tax rates when qualified withdrawals are taken after age {{sfrac|59|1|2}} (as for traditional IRAs). Contributions to a SEP plan are deductible, lowering a taxpayer's income tax liability in the contribution year.