Mar 30 2011

What is a SEP IRA?

Category: Finance


SEP IRAA SEP IRA or Simplified Employee Pension plan is a type of retirement account that gives small businesses (sole proprietors, partnerships, S corporations) the ability to make contributions on behalf of their employees retirement and, if self-employed, their own. It is essentially a mix between a 401k and a traditional IRA but funded 100% by the employer, employees do not contribute. In return for making these contributions the employer receives a tax deduction equal to the total amount contributed on the behalf of employees. For the 2010 tax year, employers can fund eligible employee accounts with up to $49k or 25% of the employee’s total compensation for the year, whichever is less. This type of pension plan is a good way for companies to reduce their tax basis, while at the same time helping employees save for retirement.

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