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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.