As a Self-Employed Person How Much Can I Contribute to a SEP Retirement Account?

Self-employed individuals may contribute to a SEP retirement account.

A Simplified Employee Pension, also known as a SEP IRA, follows the same contribution and investment rules as a traditional IRA. Self-employed individuals can contribute to a SEP IRA on their own behalf up to certain limits.

Definition

A SEP retirement account is an investment tool that allows self-employed persons to contribute to their own retirement account as well as to the retirement accounts of any employees.

Contributions

Self-employed individuals make contributions directly to a traditional IRA or annuity that is set up as a SEP account. According to the IRS, annual contributions "cannot exceed the lesser of 25 percent of compensation, or $49,000 for 2009 and 2010." Contribution amounts are adjusted based on annual cost of living changes.

Advantages

Contributions to a SEP retirement account allow a self-employed individual to save for retirement on a tax-deferred basis. This is beneficial because investment gains are able to grow tax-free until distribution.

References

• Internal Revenue Service: Retirement Plans FAQs Regarding SEPs