SEP-IRA Contribution Limits . With a simplified employee pension plan, a business can make tax-free contributions to an individual retirement account for each of its employees. Contribution limits. You may contribute up to 25% of the employee's total compensation or a maximum of $57,000 for the 2020 tax year and $58,000 for the 2021 tax year, whichever is less. SEP IRA for Employees. SEP IRAs are suitable for employers or self-employed professionals who intend to make low to moderate contributions ($10,000 to $50,000) to their retirement plan. Contributions to an employee’s SEP IRA cannot exceed the lesser of either 25% of their compensation or $57,000 in 2020 or $58,000 in 2021. All SEP-IRA contributions are considered employer contributions on behalf of employees. Employer contribution limits. Establishment deadline If you decide to establish a SEP-IRA, you can contribute … A SEP IRA is … A SEP IRA (Simplified Employee Pension) is a retirement plan that is popular with many small business owners and self employed individuals. Employers are generally the sole contributors, but employees may be able to make traditional IRA contributions to the SEP-IRA. If you’re a high-income professional, such as a physician with your practice or a highly-paid consultant, or firm with critical employees, SEP IRA may not serve the purpose. The 2020 SEP IRA contribution limit is $57,000 and the 2019 SEP IRA contribution limit is $56,000. With a SEP IRA, in 2021, an employer can contribute as much as 25% of an employee's gross annual salary or $58,000, whichever is less. Calculate how much you can contribute using our SEP IRA Contribution Worksheet (PDF). SEP-IRA contributions are treated as part of a profit-sharing plan. For employees, the employer may contribute up to 25% of the employee's wages to the employee's SEP-IRA account. The tax-deferral benefits for an employee's SEP-IRA are similar to those of traditional IRAs: Contributions to the account are made with pre-tax earnings, and all … That's up from a limit of $57,000 in 2020. A SEP IRA for employees is a retirement plan option that allows very small businesses and entrepreneurs to defer up to $56,000 annually or 25% of their employees’ compensation. An eligible employee (including the business owner) who participates in their employer’s SEP plan must establish a traditional IRA to which the employer will deposit SEP contributions. Contribution rules: Must be made by the employer. One of the most appealing features of SEP-IRAs is the large amount you can put away for retirement. Since employers make the contributions, not employees, catch-up contributions for retirement savers 50 and over are not permitted in SEP IRAs. A Simplified Employee Pension IRA, or SEP IRA, allows self-employed people and small-business owners to save up to $57,000 in 2020 for retirement. Simplified Employee Pension (SEP) plans are a type of tax-deferred retirement savings plan for the self-employed and small business owners. Only an employer can contribute to a SEP IRA, and they are required to make proportional contributions to all full-time employees. For example, if an employee earns $40,000 in wages, the employer could contribute up to $10,000 to the SEP-IRA account. Can vary each year between 0% and 25% of compensation (maximum $56,000 for 2019 and $57,000 for 2020), and each eligible employee must receive the same percentage.