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SEP IRA Contribution Limits

The 2012 SEP IRA contribution limit is $50,000 and $49,000 for 2011.

S or C corporation or an LLC taxed as a corporation.

For incorporated businesses, compensation is based on W-2 income. Annual contributions can be made into a SEP IRA up to 25% of W-2 income.

Sole proprietorship, partnership or an LLC taxed as a sole proprietorship

For those taxed as sole proprietors compensation is based on adjusted earned income. Adjusted earned income is determined by completing an IRS worksheet. SEP IRA contributions of 20% of adjusted earned income can be made annually. Annual compensation of more than $250,000 in 2012 cannot be taken into consideration for determining contributions.

Contributions to a SEP IRA are generally 100% tax deductible and investment earnings in a SEP IRA grow taxed deferred. Withdrawals after age 59 1/2 are taxed as ordinary income. Withdrawals prior to age 59 1/2 may incur a 10% IRS penalty as well as income taxes.

A SEP IRA has broad appeal due to its high annual contribution limits, completely discretionary and flexible annual contributions and minimal administration. SEP IRA plans can be established by a one person business or by a business owner with employees.

  • Most frequently a SEP IRA is established by a business owner with no employees. Learn more about a SEP IRA for the self employed.
  • In special situations a SEP IRA may be an ideal retirement plan for a business owner with employees. Learn more about a SEP IRA for business owners with employees.

 

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Disclosures:

*The information on this page is for informational purposes only and does not constitute, and should not be construed as, professional, legal or tax advice. To determine your individual tax situation and specific needs, please consult a professional tax advisor.

*Information contained in these sections merely highlight some benefits. There are risks involved with all investments that could include tax penalties and risk/loss of principal.