SEP IRA
Business & Finance abbreviation · Personal Finance
| Stands for | Simplified Employee Pension individual retirement account |
|---|---|
| Categories | Business & Finance |
SEP IRA stands for Simplified Employee Pension individual retirement account, a personal finance abbreviation.
Retirement account that self-employed people and small employers fund through employer contributions of up to 25% of each eligible employee's compensation, subject to an annual dollar cap. It requires little paperwork and no annual filing, but the employer must contribute the same percentage of pay for every eligible employee.
Example: As a sole proprietor, I can open a SEP IRA as late as my tax-filing deadline, including extensions, and still deduct last year's contribution.
Usage notes
SEPs were authorized by the Revenue Act of 1978. Contributions are discretionary from year to year, which suits businesses with uneven profits. For a self-employed person the effective maximum works out to about 20% of net self-employment earnings after required adjustments. SECURE 2.0 permitted Roth SEP contributions from 2023, though custodians were slow to offer them.
Related abbreviations
More personal finance abbreviations
- RESP – Registered Education Savings Plan
- RMD – Required minimum distribution
- Roth 401(k) – Roth designated account within a 401(k) plan
- Roth IRA – Roth individual retirement account
- RRIF – Registered Retirement Income Fund
- RRSP – Registered Retirement Savings Plan
- SEPP – Substantially equal periodic payments
- SIMPLE IRA – Savings Incentive Match Plan for Employees individual retirement…
- SIPP – Self-invested personal pension
- SMSF – Self-managed super fund
- Solo 401(k) – One-participant 401(k) plan
- SWR – Safe withdrawal rate