Additional IRA Information
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Individual Retirement Accounts (IRAs)
Simplified Employee Pension (SEP)
A retirement plan for employers and the self-employed, the SEP features all the advantages of a Traditional IRA, with higher contribution limits and no upper age limit for participants.
- Easy and inexpensive to administer
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Deductible contributions
- High contribution limits
- Tax-deferred earnings
- Wide range of investment options
Traditional IRA vs SEP IRA
| Category |
Traditional IRA |
SEP IRA |
| Funding |
$4,000 maximum contribution;
$5,000 for individuals over 50 years old |
Maximum contribution is 25% of compensation, not to exceed $45,000 for tax year 2006. No employee contributions are allowed. |
| Tax Treatment |
May be deductible from the individual’s income. |
Deductible from the business’s income. |
| Age Restrictions |
No minimum age, as long as the individual has earned income. Contributions are not permitted for the tax year in which individual turns 70½ or thereafter. |
Employer may stipulate a minimum age of 21. Contributions must be made for any eligible employee, even if employee is over age 70½. |
| Distributions |
Distributions prior to age 59½ may be subject to IRS penalty as well as tax. Normal distributions may begin at age 59½. Distribution is required beginning in the year the individual turns 70½. All distributions are added to taxable income and subject to tax.Tax-free rollovers and transfers are permitted. |
Distribution restrictions and requirements from a SEP IRA are identical to those from a traditional IRA. Even if the participant is over 70 and receiving contributions, there will be a required minimum distribution. Tax-free rollovers and transfers are permitted. |
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