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SEP IRA (SIMPLIFIED EMPLOYEE PENSION) AND PROFIT SHARING MONEY PURCHASE ACCOUNT
A TYPE OF TRADITIONAL IRA FOR SELF-EMPLOYED INDIVIDUALS OR SMALL BUSINESS OWNERS
KEY FACTS ARE:
Any business owner with one or more employees, or anyone with freelance income can open this account.
For 2019, business owners can contribute up to 25% of income or $56,000 whichever is less.
The SEP IRA is established by an employer and funded by the employer. The employer receives a tax deduction and the contribution is excluded from the employee’s gross income.The deduction is limited to 25% of the employee’s compensation. You cannot discriminate in favor of highly compensated employees and contributions must be made for all employees who are 21 years old and earn at least $600 annually. The contributions are not mandatory and do not need to be made every year.
SEP IRAs must be established by the employer’s tax filing deadline including extensions for the tax year to which the qualifying contribution applies.
Profit Sharing Money Purchase Plans must be established, but not fully funded, by December 31st of the appropriate year.
