Simplified Employee Pension plan or SEP provides employers a simplified method to make contributions toward their employees’ retirement and even for their own retirement plans. Contributions are made directly to an IRA set up for each employee (a SEP-IRA). But when when you’re self-employed, it can be difficult to decide what percentage you should contribute to a SEP-IRA .
What are SEP IRA Contribution Limits ?
The first question that comes to an employee or a self employed business owner is “How much can I contribute into a SEP IRA?” . Here are three basic rules for the contribution limit
- The maximum contribution cannot exceed the lessor of 25% of total compensation of either:
- $54,000 for 2017 or
- $55,000 for 2018.
- $56,000 for 2019
- Employer contribution % must be equal to all eligible employees.
- Employee elective deferrals and catch-up contributions are not permitted in SEP plans. Only employer contributions are allowed.
The calculation of SEP IRA contributions for self-employed individuals is complex because the salary of the account holder is calculated after the contribution is made. We have created a simple calculator for self employed business owner to compute the contribution limit