How to Compare a SEP & IRA
A SEP-IRA, or simplified employee pension individual retirement account, is a type of IRA that can be offered by any employer for its employees. You can start a traditional or Roth IRA on your own.
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Tax Treatment
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A SEP-IRA is always a tax-deferred account. That means contributions to the account aren't taxed, but withdrawals count as taxable income. Traditional IRAs also offer tax-deferred savings. Roth IRAs offer after-tax savings, which means contributions cannot be deducted on your income-tax return, but any withdrawals are tax-free.
Size
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SEP-IRAs, traditional IRAs and Roth IRAs all have limits on the amount you can contribute each year. In addition, SEP-IRAs allow employers to contribute 25 percent of the employee's compensation, or the annual contribution limit for employers, whichever is smaller.
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Time Frame
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SEP-IRAs and traditional IRAs require that you be at least 59 1/2 before you can take qualified withdrawals. Roth IRAs also require the account to be open for at least five years before taking a qualified withdrawal.
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