SEP IRA contribution limits for 2011 and 2012 are changing. SEP’s are Simplified Employee Pension (plans). You can benefit from a SEP IRA if you own a small business or are self-employed. The federal government rules let you use an SEP plan as an easy way to contribute to your employees’ retirement savings or your own retirement.
The SEP IRA account has many, many benefits for the self employed looking to save for retirement. They include high deduction limits, flexibility in administration, high income through tax deferred growth, and complete flexibility in contribution limits. To find out more, talk to a qualified retirement specialist. This article covers the maximum IRA limits on these accounts.
Here are the SEP Rules for 2011 and 2012. For 2011, the maximum you can contribute to an eligible SEP IRA is set at forty-nine thousand dollars, or twenty-five percent of the employee’s salary, whichever is smaller. So for an employee who is compensated one hundred thousand dollars, the maximum SEP contribution is twenty-five thousand. Only the first two hundred and forty-five thousand dollars of an employee’s compensation can be considered when making this calculation.
In 2012, the IRS has raised the contribution limit to fifty thousand dollars, or twenty-five percent of the employee’s salary, whichever is the smallest. These limits are subject to future cost-of-living adjustments as the years go by. Also in 2012, the first two hundred and fifty thousand dollars of an employees compensation may be considered.
It’s important to note these are employer limits, and don’t apply to the employees (participants) themselves. As an employee, if your SEP IRA allows for non-SEP contributions, then you can make tax-deductable contributions up to your maximum IRA limit – generally five or six thousand dollars, depending on your age.
Typically, SEP IRA accounts are established by businesses with only a single employee, the owner. This means a sole proprietorship or a corporation with only a single owner/worker. The flexibility of the rules allows you to set it up this way.
SEP IRA Rules for the Self-Employed
If the salary from your business comes in the form of a W-2, your SEP IRA contribution is limited to the standards above. But what are the contribution limits for non W-2 (personal) income? In these situations, the same limits apply, but the IRS sets special guidelines to determine out the maximum contribution. See the worksheet in chapter 5 of IRS publication 560 for an explanation.
These contributions are for the most part completely tax deductible by the IRS. Additionally, any investment earnings that grow can be deferred on your income tax. These are some of the highest maximums for any type of individual retirement account in the United States. Much better than say, the contribution limits for a Roth account. Generally, there is a high degree of freedom with these types of accounts, both in how you choose to administer the account and how much you choose to contribute.
There are no catch-up provisions provided for SEP IRAs.
SEP IRA Contribution Deadlines. The deadline for SEP contributions for employers is the same as the date it’s taxes are due for the year. Extensions apply!
The exact rules for setting up and governing a SEP account in 2011 and 2012 are much more complex than a regular IRA. And the penalty for making a mistake when opening your IRA can be high.For more information on establishing a SEP account for your business, read the IRS publication for more specific instructions.
| Date | Contribution LimitUnder 50 | Contribution Limit(if over age 50) | Deadline | ||
| 2011 | $11,500 | $14,000 | 04/17/2012 (extensions apply) | ||
| 2012 | $11,500 | $14,000 | 04/15/2013 (extensions apply) | ||
| You must establish SIMPLE IRAs by October 1. | |||||
