For 2009, the maximum annual contribution that can be made to a SEP IRA is the lesser of 25% of compensation $49,000. And the maximum compensation that can be used to compute SEP contributions is $245,000 in 2009. The SEP plan limits were not increased for 2010. The limits for SEP plans, effective for 2010 calendar year plans and plans that have a fiscal year beginning in 2010 remain unchanged from 2009.
Employers must notify all eligible employees when they contribute to the employee's SEP IRA. Notification must be done within 30 days of the contribution or January 31, whichever is later. Employers have until their federal tax return due date, including extensions to make these contributions.
Simplified Employee Pension (SEP) plans are employer-funded retirement plans that give employers or self-employed individuals the ability to make contributions into their own and each eligible employee’s traditional individual retirement account (IRA) or traditional SEP IRA.
SEP plans were created for the self-employed, sole proprietors, partnerships, small businesses, small employee groups, and corporations. They meet the needs of small employers because they are easy to administer and are relatively inexpensive to establish and maintain. SEP plans provide a solid alternative to establishing more complex qualified retirement plans, like 403(b) and 401(k) plans.
To learn more about SEP plans and SEP IRAs, review the articles in the following sections: