Simplified Employee Pension Plans
Overview
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Contribution Due Date: Extended Due Date
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Plan Establishment: Plan may be set up and funded before the expiration of the extended due date for the taxpayer’s return.
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Contribution $ Limit (2024): $69,000
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Contribution % Limit: 25% (20% of the net)
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Contributions are allowed after age 72 (Code Sec. 219(b)(2))
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No catch-up contributions allowed for those age 50+
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Pub 560 – SEP, SIMPLE & Qualified Plans
A Simplified Employee Pension (SEP) is an alternative to a Keogh plan, designed to be easily administered to meet the needs of a small business. The limit on SEP contributions is similar to that of the Keogh profit-sharing plan.
A sole proprietor who has a Keogh plan can terminate the plan and roll over the funds to a SEP (LR 8033090). Like post-2019 Keoghs, a SEP can be set up after the end of the plan year. A 5500-series return is not required to be filed for a SEP covering only one person. However, if employees are covered, certain notifications are required.
IMPORTANT NOTES
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A SEP plan is a qualified plan and the amount contributed to a SEP plan is NOT treated as an IRA contribution for purposes of limiting traditional and Roth IRA contributions where the taxpayer would otherwise qualify for traditional or Roth IRA contributions. However, due to the “active participation” rules, deductions of contributions to a traditional IRA by a SEP participant may be limited depending on the individual’s AGI.
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When figuring the taxable and non-taxable portions of an IRA distribution or conversion, the SEP IS treated as an IRA and is included in the rule where “all IRAs are treated as one.”
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A SEP plan is considered an IRA for purposes of limiting IRA rollovers to one rollover per 12-month period.
California Differences
California conforms to Federal treatment.