Simplified Employee Pension (SEP) IRA

Small business owners can make tax-deductible contributions with this flexible plan that is easy to set up and maintain. If you have employees, you may be required to contribute for them as well. 

A Simplified Employee Pension (SEP) plan may work well if you want a low-cost, easy-to-maintain retirement plan for you and your employees. Both SEP IRA and Traditional IRA contributions can be made to the same account, and you have the flexibility to change how much your business contributes from year to year.

Here are some details: 

Eligibility to Contribute

You can contribute at any age if you are self-employed or a small business owner.

Maximum Annual Contribution

2024 tax year: As a small business owner you may be able to contribute up to 25% of your compensation or $69,000, whichever is less.

2023 tax year: As a small business owner you may be able to contribute up to 25% of your compensation or $66,000, whichever is less.

If you have employees, you may be required to contribute for them as well.

Tax-Deductible Contributions

As a small business owner you can deduct your contributions for yourself and your employees from your company's federal taxable income. The individual traditional IRA contribution if made - may or may not be deductible depending on individual tax filing status and modified adjusted gross income.

Taxation of Earnings and Withdrawals

Tax-deductible contributions and earnings are taxed as ordinary income when withdrawn.

Types of Investments

• Stocks, bonds, mutual funds and Advisory Products available through a Wells Fargo Advisors brokerage account.

Minimum Initial Investment

Varies by investment option

Withdrawal Penalties

10% IRS additional tax if withdrawn before age 59½ unless an exception applies.

Exceptions:

• Death
• Disability
• Medical expenses in excess of 10% of AGI
• Health insurance premiums if unemployed for 12 consecutive weeks
• Qualifying higher education expenses
• Qualifying first time home purchase ($10,000 lifetime limit)
• Substantially equal periodic payments made over life expectancy
• Qualified military reservist
• Involuntary IRS levies
• Conversion to a Roth IRA
• Up to $5,000 for qualified adoption / birth expenses

Required Withdrawals

Beginning in tax year 2023, the age to start Required Minimum Distributions (RMDs) has been modified to age 73 (Does not affect participants who turned age 72 on or before 12/31/2022.)

Deadline to Set Up and Fund

You may establish and fund up through the business' tax filing due date plus extensions.

Commissions and Fees

Vary by account and investment option