When Do You Need To Contribute To You Sep IRA By?Have you heard of a Sep IRA, or Simplified Employee Pension Individual Retirement Account? Perhaps you have one already, or perhaps you are only familiar with 401k, IRA or Roth IRA plans. While other tax-deferred retirement savings vehicles are more common and more well known, the Sep IRA has some key benefits over these competitors. Primarily used for owner-only businesses, or small businesses with few employees looking for a low cost solution to offer their employees a pension fund, the Sep IRA is essentially a profit sharing plan. Before we look at the Sep IRA contribution deadline, let's take a look at its key features. Who can participate? The Sep IRA must cover all employees over the age of 21 who both make more than the required minimum income and have worked for the company 3 years in the past 5. What do they get? The employees get tax-deferred savings, but the next benefit is why this instrument is so popular among owner-only businesses. Assuming that the business is incorporated and the owner's income is reported as business income (rather than W-2 wage income, as an operator of a sole proprietor LLC receives for instance), the Sep IRA retirement plan allows the owner to write off the amount of the contributions as a business expense. How do they get it out? Withdrawals are meant to be difficult and expensive for any type of tax-deferred retirement savings vehicle. Generally speaking, these disbursements are taxable and come with an additional 10% penalty if it is withdrawn before the age of 59 and 1/2. See the article "Sep IRA maximum contribution" for more details on withdrawals. When do they contribute by? So finally we come to the question in the title of the article. Contributing to a Sep IRA has been made simple by the IRS, due to its advertised advantage of being an easy and affordable option for small businesses without a lot of extra time and money to throw at their 401k plan. You may contribute to a Sep IRA from January 1st until your tax return filing date. Typically this is April the 15th, however if you file an extension, you have until the new extended filing date to contribute. For employers, the Sep IRA contribution deadline is before the filing date of the business. In most cases this will be April the 15th as well, however some companies run on a fiscal year that differs from the calendar year, necessitating a different tax filing date. So there you have it, the Sep IRA is easy to manage and easy to contribute to. For benefits of 401k plans versus the Sep IRA, see the article of the same topic on the right hand side of this page. |