SEP IRA & SIMPLE IRA-SEP IRA

Facts about SEP IRA

SEP IRA has many similar features to SIMPLE IRA or Keogh plans. Below are some facts about SEP IRA to help you get started with your SEP IRA account.

What does SEP in SEP IRA stand for?

SEP in SEP IRA stands for Simplified Employee Pension Plan.

What is the SEP IRA contribution limit for 2006? What is the maximum amount that can be contributed to a SEP IRA in 2006?

The SEP contribution limit cannot exceed the lesser of 25% of the employee's compensation ($220,000 for 2006) or $44,000 for 2006.

Employees: Compensation is the amount reported as wages on the employee's W-2. Remember that a corporation's owner(s) must report W-2 income in order to contribute to a SEP.
Self-Employed Individuals: Special rules apply when figuring the maximum contribution for a self-employed individual.

What is the deadline to establish and fund a SEP IRA?

The deadline to establish and fund a SEP IRA for a year is the business's tax filing due date, including extensions, for that year.

Corporations: The due date for extablishing and funding a SEP IRA is the 15th day of the third month following the close of its tax year. If an extension is filed, the due date for extablishing and funding a SEP IRA is extended for six months. For example, a calendar year corporation has until March 15 of the following year to establish and fund a SEP IRA (September 15th if on extension).
Unincorporated businesses: For individuals, partnerships and other unincorporated entities the deadline for extablishing and funding a SEP IRA is the 15th day of the fourth month following the close of the tax year (April 15th of the following year if on a calendar year). Extensions to August 15th and October 15th are generally available.

Must all employee SEP IRA accounts be opened at the same Financial Institution?

No.

Not all eligible employees need to establish a SEP IRA account with the same Financial Institution. Under our SEP IRA Plan document, employees may elect to alternatively establish a SEP IRA account at another financial firm that will accept the account.

The employer must send contribution checks to each financial institution where his or her employees have established a SEP IRA account.

SEP IRA and SIMPLE IRA website provides free resources on SEP IRA and SIMPLE IRA. For your specific SEP IRA or SIMPLE IRA needs, please consult your attorney.

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