How does a Simplified Employee Pension (SEP) Account work?

Posted on April 3, 2023 by Brandon Frey

A SEP works like a Traditional IRA, but the SEP IRA contribution limits may be higher than Traditional IRA contributions depending on your or your employees’ income.

Employer contributions are limited to 25% of compensation with a maximum of $61,000 annual contributions for the tax year 2022 or $66,000 for the tax year 2023.
A SEP IRA may allow tax deductions on some or all of your contributions to your own account or your employees’ accounts.
Your deposits and earnings can grow tax-deferred, and then you pay regular income tax on your withdrawals.
You may need to pay a 10% tax for early withdrawals before age 59½ unless you meet the exception criteria.
You need to make Required Minimum Distributions after age 73.