'SEP IRA' is explained in detail and with examples in the Retirement edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
SEP IRAs are special simplified employee pensions that permit employers to contribute money to the retirement plans of their employees. If individuals are self employed, they may also set up and fund one of these accounts for their own benefit. These plans compare favorably to the more popular and utilized 401(k) plan. SEPs offer greater contribution amount limits. They are also much less complicated to establish and maintain than are the 401(k)s.
Any type of employer is allowed to create an SEP IRA. This means that businesses which are not incorporated, partnerships, and sole proprietorships can all work with and utilize them. Even self employed individuals who are employed elsewhere as well (with retirement plans at their other workplace) can make their own SEP.
SEP IRAs offer several advantages to owners and contributors. They provide significant tax benefits for employees and employers. Employer contributions give tax deductions to the employer during the tax year in which they make the contribution. Self employed individuals also can take this tax deduction for themselves. SEPs are also popular because they do not require any annual paperwork to be filed with the IRS. The paperwork that creates these accounts also offers the plus of being simple and minimal.
Individuals can make contributions for SEP IRAs in the year after the contribution applies. Deadlines for these contributions may also be stretched to the tax return due date. As far as establishing these accounts goes, deadlines are for the tax return due date and any extension that the IRS grants on the taxes.
In general, these accounts have to be opened and all contributions should be made by the April 15th that comes after the year in which the income was attained. Any taxpayers who take an extension on their tax returns to October 15th would receive a similar grace period for opening and funding the SEP IRA.
The contribution amounts for SEPs are quite flexible. No set percentage has to be contributed as with some of the rival retirement accounts like Keoghs. One could contribute nothing or as much as 25% of his or her income for the year (on as high as a $265,000 income amount). The full contribution for a single individual is not allowed to be greater than $53,000 in the year 2016. This amount contrasts with the typical standard IRA contribution limits of $5,500 for the year 2016.
The SEP limits are also substantially higher than the contribution limits on 401(k)s that come in at $18,000 for 2016 or at $24,000 for those who are at least 50 years old. SEPs do not have any provisions for catch up, as with other forms of IRAs or 401(k)s. Thanks to the higher contribution limits for every given year, this does not usually present a problem for those who are behind on their retirement accounts and want to put in more.
Employers are required to treat all employee contributions equally. This means that they must give the same contribution percentage for each employee who has made at least $600 in the year, who is 21 years or older, and who has worked for the company minimally three out of five prior years.
The only point where contributions to SEP IRAs get complicated centers on maximum contribution amounts. The 25% of income limit mentioned earlier is not figured out of gross revenue, but from net profits. Besides this, deductions on the half of self employment tax have to be first taken off of the net profit number before the limit for maximum contributions can be accurately determined off of the net profits.

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