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Individual Retirement Accounts

Sep-ira

The fourth type of IRA is a Simplified Employee Pension (SEP-IRA), which allows employers to make contributions on behalf of qualified employees. To qualify, an employee must be at least twenty-one years old, have worked three out of the five previous years for the employer, and earned at least $400 of compensation in the year contributions are made.

The contribution by the employer on behalf of an employee for the SEP-IRA is limited to the lesser of $30,000 or 15 percent of the employee's compensation, excluding the employer contribution to a tax-deferred account; a SEP-IRA cannot be a Roth IRA. Although employees can also contribute to this account, the same rules for contributions apply as in a traditional IRA. Further, the SEP-IRA is considered an employer-sponsored plan, and thus any contributions by the employee are subject to the same phaseout rules that govern the traditional IRA. Rules regarding distributions are the same as those for a traditional IRA.

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