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What is a SEP IRA?

A SEP plan allows employers to contribute to traditional IRAs (SEP-IRAs) set up for employees. A business of any size, even self-employed, can establish a SEP.

An eligible employee is an individual (including a self-employed individual) who meets all the following requirements:

  • Has reached age 21
  • Has worked for the employer in at least 3 of the last 5 years
  • Received at least $600 in compensation from the employer during the year (for 2019 and 2020)

An employer can use less restrictive participation requirements than those listed, but not more restrictive ones.

Contributions an employer can make to an employee's SEP-IRA cannot exceed the lesser of:

  • 25% of the employee's compensation, or
  • $57,000 for 2020 ($56,000 for 2019)

Note: Elective salary deferrals and catch-up contributions are not permitted in SEP plans.