SEP IRA Contribution Head Quarters


Hi and welcome to your SEP IRA contribution headquarters.

I compiled this brief website on SEP IRA, or the Simplified Employee Pension Individual Retirement Account, because several of my friends and family who are self employed and business owners kept asking me how to start one and what it entails.

I figured if I was going to explain it to one I’d explain it to all, and all the self employed business owners out there who may have the same questions.

I hope you find my website helpful.  If I can be of any additional help please let me know by contacting me through the contact link above.

As a Certified Public Accountant, I started my own SEP IRA and have helped several others do the same. I can help you too, either by setting it up myself, or referring you to some of the best custodians out there through whom you can set one up.

What is a SEP IRA?

When I was working in Corporate America, in addition to having a 401k retirement plan at work, I had the option of investing in a Traditional or Roth Investment Retirement Account, also referred to as an IRA.  But when I was injured and became self employed subsequently, I was exposed to a brand new way to save for retirement through SEP IRA contributions.

A SEP IRA is a particular type of Individual Retirement Account (IRA) that business owners and self employed individuals (freelancers included) are allowed to invest in for themselves and the employees of their business.  SEP IRA contributions can only be made in the United States.

And if you are a business owner with no employees, there is very little cost to you to administer the plan as a self employed individual.  However, if you have employees working for you, then ALL employees under law must receive the same exact benefits under the SEP IRA plan. Yes, SEP IRA contributions can get very expensive very fast for business owners with multiple employees.

What Type of Businesses Can Start a SEP IRA?

In the simplest terms, any business can. Whether you are a self-employed individual operating as a sole proprietorship, a partnership or a small corporation (even non-profit corporations), you can engage in SEP IRA contribution every year.  If you have employees, you can make a tax deductible contribution on their behalf and fund their accounts as well. This of course includes you as the business owner as well.

By engaging in SEP IRA contribution, you get a tax advantage as an employer. You get to deduct the SEP IRA contribution you make on behalf of your employees when you file your taxes. So if you contribute $100, you are really losing out on only $100 minus the tax refund you get back as a result of your SEP IRA contribution.

Who cannot engage in SEP IRA contribution? Any individual who is an employee and NOT a bsiness owner. Basically, if you are a business owner with employees, your employees have to establish a Traditional IRA account wherein you as the business owner will make a SEP IRA contribution toward. Basically for the employee it is a Traditional IRA whereas for you as the employer your contribution is considered to go into a SEP IRA account. Banks and financial institutions refer to this account as a SEP IRA account.

Why Should You Establish a SEP IRA?

Why not? As a business owner, a SEP IRA is an easy and cost efficient way to establish a retirement planning vehicle for both yourself and your employees. There is very little start up and ongoing administrative costs involved, especially when compared to more traditional qualified retirement plans administered by larger corporations such as the 401k defined contribution plan.

In addition, opening up an account does mean you have to engaged in SEP IRA contribution.  It is totally up to you as the business owner whether you want to engage in SEP IRA contribution in any given year. You can change your decision every year based on how the business performs.  The good news is that you can always retroactively fund the account up till some time, therefore you can wait to see what kind of year your business had before you decide to engage in SEP IRA contribution.

A SEP IRA account is also attractive from an employee’s perspective as they can use the SEP IRA contributions you make as deposits into their Traditional IRA accounts, therefore treating it as traditional contributions.  This will make a big difference in terms of the distribution rules and requirements which I will talk about in another section of this website.

That said, there are different limits established by the law in terms of how much an individual can contribute to a Traditional IRA compared to how much an employer can contribute. These rules are completely independent of each other and do not impact the other.  For your employees however, it is important to realize that if they are benefiting from a SEP IRA contribution made by you, they may be impacted in terms of how much they can deduct as a Traditional IRA contribution.

After all, it is you the employer who is making the SEP IRA contribution and thereby taking the tax benefit as well on your tax return.  The IRS loves its money and does not like double dipping.

Read the rest of my website for more information on SEP IRA contribution limits. I also talk about the rules to establish a SEP IRA quite extensively.

More on SEP IRA Contribution – Rules, Limits and How to Maximize Benefits

Read the post by Sunil on the Extra Money Blog if you want to read more about how your SEP IRA contribution can maximize benefits to you as a business owner, which gives a pretty unique perspective on a SEP IRA plan compared to a traditional plan.

If you want to read more about my business and how I came to start it and expand it, I would refer you to my website on accounts receivable factoring where I talk about my story extensively. I also discuss structured settlements on another website, which is a topic I am very close to as it is how I got started in business for myself.

I hope you learned something from my explanation of the SEP IRA plan. I encourage you to read the remaining three sections of this website:

I wish you all the best and please let me know if I can be of additional help to you.

~Curt Matsen, CPA

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