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Compare SEP-IRA vs. SIMPLE-IRA vs. 401(k) Plans

Simplified Employee Pension Plan

A Simplified Employee Pension Plan, commonly known as a SEP-IRA, is a retirement plan specifically designed for self-employed people and small-business owners. Its key features are highlighted below. When establishing a SEP-IRA plan for your business, you and any eligible employees establish your own separate SEP-IRA; employer contributions are then made into each eligible employee's SEP-IRA.

Plan Eligibility

You can establish a SEP-IRA if you:

  • are a sole proprietor, in a partnership, or a business owner (of either an unincorporated or incorporated business, including Subchapter S corporations);
  • earn more than $550 of self-employed income by providing a service, either full-time or part-time, even if you are already covered by a retirement plan at your full-time job.
Tax advantages

Tax-deductible contributions

  • Up to 25% of compensation, as much as $51,000 for 2013.¹

Tax-deferred growth potential

  • Any investment earnings grow tax-deferred until withdrawn.
SEP-IRA Deadline

The deadline to open and contribute to a SEP-IRA is your tax filing deadline (including any extensions). For most self-employed individuals and small-business owners, that deadline is usually April 15.

Contribution Flexibility

No annual contribution required

  • Contribution percentage can vary each year, from 0% - 25% of compensation (maximum contribution is $51,000 per participant for the 2013 plan year).
  • All SEP-IRA contributions must be made by the employer, and the same percentage of compensation must be contributed for each eligible employee (based on W-2 wages) including the employer.
Other Key Advantages
  • No annual reports for you to file with the IRS.
  • Contributions are not mandatory each year.
  • Ability to offer another qualified retirement plan in addition to the SEP-IRA.

¹ The maximum compensation on which contributions can be based is $255,000 for 2013. For self-employed individuals, compensation means earned income.