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Simplified Employee Pension (SEP) IRAs

Whether you are self-employed or have employees, use a SEP IRA to build tax-deferred wealth for retirement. You may also be able to take a deduction on your business income taxes if you're eligible. To explore whether a SEP IRA makes sense for you, contact a BMO Harris financial advisor today.

Primary benefits

  • Save more than you could with a Traditional or Roth IRA. With a SEP IRA,, you can set aside up to 25% of compensation, or $50,000, whichever is less.
  • Deferred taxes. Pay no tax on investment earnings until the time of withdrawal. Your earnings stay in your account and continue to compound, helping to speed your account growth.
  • Maximize your retirement savings. You can have both a SEP IRA and a Traditional or Roth IRA.
  • Tax-deductible contributions up to IRS limits. The most you can deduct on your business tax return is the lesser of the contributions you make or 25% of compensation. (Compensation considered for each employee is limited to $250,000 for 2012 and is subject to annual cost-of-living adjustments for later years.) If you are self-employed and contribute to your own SEP-IRA, you'll use a special computation to figure out the maximum deduction for your contributions. Talk with your tax advisor.
  • Penalty-free early withdrawals before age 59½ for a first-time home purchase (up to $10,000) or qualified education expenses.


All business owners may open a SEP IRA for themselves and their employees. In order for employees to participate, they must be age 21 or older, have worked for you in at least three of the last five years; and have received at least $550 in compensation in 2012 (subject to annual cost-of-living adjustments in later years). You may use less restrictive requirements to determine an eligible employee.


  • Contribute up to the lesser of $50,000 or 25% of compensation for yourself and each employee. You must contribute equally for all employees.
  • The limits apply in the aggregate to contributions you make for your employees to all defined contribution plans, which includes SEPs. Consider only up to $250,000 of an employee's compensation for 2012 (subject to annual cost-of-living adjustments for later years). You must make contributions in cash.
  • The deadline to contribute is the tax filing deadline for each year (excluding extensions).

Other investment considerations

  • Withdrawals for SEP IRAs follow the same rules as Traditional IRAs.

Contact a Financial Advisor