OVERVIEW

  • SEP IRA contribution limit: Employers can contribute up to 25% of their compensation up to $66,000 for 2023 and $69,000 for 2024.
  • SEP IRA contribution deadline Employers must make contributions by the federal tax filing deadline, which is normally April 15, each year. For 2023, the tax filing deadline is April 15, 2024.
  • Can I request more time? Yes, you can file for an extension, which would give you until October 15, 2024.
  • Who can contribute to a SEP IRA? Only employers can make contributions to a SEP IRA. Employees can receive contributions into their accounts by their employer, but cannot make elective salary deferrals on their own.

A SEP IRA (Simplified Employee Pension) is a tax-deferred retirement account for business owners and self-employed individuals. Contribution rules are different for a SEP IRA than other IRAs like the traditional and Roth IRAs.

Table of contents

SEP IRA contribution limit

Employers can contribute up to 25% of their compensation up to $66,000 for 2023 and $69,000 for 2024. That’s over 10x higher than a traditional IRA, which only has a contribution limit of $6,500 ($7,500 if age 50+) for 2023 and $7,000 ($8,000 if age 50+) for 2024.

Contributions are made in pre-tax dollars and are tax deductible. Investments in your account grow tax-deferred until you start taking qualified distributions in retirement.

SEP IRA contribution deadline

The SEP IRA contribution deadline is the federal tax filing deadline each year. Usually, that date is April 15, unless it falls on a holiday or weekend then it would be moved to the following weekday.

Is there a separate deadline for setting up a SEP IRA?

No, there is no separate deadline for setting up a SEP IRA if you do not already have one. You simply need to set up and contribute to your SEP IRA before the tax filing deadline if you wish to make contributions for the previous tax year.

Can I request an extension?

Yes, you can request a filing extension, which would give you an additional 6 months. The deadline for extended filings are usually on October 15, each year unless it falls on a weekend or holiday.

How contributions are calculated

A SEP IRA only allows employer contributions; employees cannot contribute directly to a SEP IRA. Instead, employers are required to make equal percentage contributions to every eligible employee’s accounts whenever they make a contribution to their own accounts.

For example, if you contribute 15% of your compensation into your SEP IRA, you must also contribute 15% of every eligible employee’s salary to their SEP IRAs.

  • Employers can contribute up to 25% of their compensation into their own SEP IRAs and to every eligible employee’s SEP IRAs.
  • Eligible employees are anyone over 21 years old who has worked for you at least 3 out of the last 5 years, making at least $750 in 2023 and 2024.
  • While employees are not allowed to contribute to a SEP IRA themselves, any contributions received by an employer are immediately 100% vested, and they can control and direct their own accounts.

Contributions are not required every year

Contributions to a SEP IRA are not mandatory and how much you contribute can change year to year. You can contribute up to a maximum of 25% of your compensation or decide to contribute 0% of your compensation if you’re having a down year.

No Roth or catch-up contributions

A SEP IRA does not have a Roth option. It works similarly to a traditional IRA. You contribute with pre-tax dollars, get a tax deduction when you contribute, but pay regular income taxes when you make withdrawals at the eligible withdrawal age of 59½.

To make Roth deferrals, you’ll have to contribute to a Roth IRA or, if you have zero full-time employees, a solo 401k. A solo 401k is like the superior version of the SEP IRA. It has the same contribution limits, but also allows employee deferrals, Roth contributions, and gives you more investment options.

Additionally, a SEP IRA has no catch up contributions for people who are 50 years of age or older. A traditional IRA and Roth IRA both have catch up contributions of an additional $1,000.

A solo 401k has catch up contributions of $7,500 for 2023 and 2024. If you’re 50 years of age or older, you can contribute up to $73,500 for 2023 and up to $76,500 for 2024.