What is a SEP IRA?
A Simplified Employee Pension Plan, otherwise known as a SEP IRA, is a retirement plan specifically designed for anyone with self-employment income (for example, self-employed individuals and small business owners). A SEP IRA can help you contribute to your retirement savings while reducing your taxable income.
The advantages of a SEP IRA
SEP IRAs have a number of advantages over other retirement plans, including:
- Tax-deductible contributions up to 25% of compensation (up to $49,000 in tax year 2011 and $50,000 in tax year 2012, the highest limit allowed by law)
- Tax-deferred growth potential until withdrawal
- No mandatory contributions or annual tax filings
- Ease of establishing and maintaining the plan
- Reduced paperwork
- Tax-deductible contributions can help decrease current taxes, and tax-deferred compounding can help both employers and employees build retirement assets. Consult your tax advisor for additional information.
Who can contribute to a SEP IRA
- is a sole proprietor*
- is in a business partnership
- is a business owner
- has self-employment income earned by providing a service
- is an employee of someone who establishes a SEP IRA for his/her employees
How contributions are made to a SEP IRA
All contributions made to a SEP IRA are employer contributions. An employee cannot defer a portion of his or her salary and contribute it to a SEP IRA. Employers may contribute up to 25% of an employee's compensation (up to $50,000 per participant in tax year 2012, the highest limit allowed by law).
- Employers are not required to contribute the same percentage of compensation every year — they may vary the percentage each year, or skip a year altogether. However, in any given year, an employer must contribute the same percentage of compensation for each eligible employee.
- SEP IRA contributions must be made by the due date (including extensions) of the employer's tax return. SEP IRA contributions are reported on Form 5498 in the calendar year in which they are received. Your tax form may reflect both current and prior year contributions, if both were received in the same calendar year. Please consult your tax advisor for more information.
- Get started with a TIAA-CREF SEP IRA.
- View IRS Publication 560 (Retirement Plans for Small Businesses).
- View IRS Publication 4285 (SEP Checklist).
* SEP IRAs for sole proprietorships can only be established though the Investment Solutions IRA. SEP IRAs for partnerships or business owners (S Corps) can be established through the Brokerage Services IRA.
The tax information contained herein is not intended to be used, and cannot be used, by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer. It was written to support the promotion of the products and services addressed herein. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.
TIAA-CREF Individual & Institutional Services, LLC, and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products.