Contributions to a SEP IRA can be made up to the due date, including extensions, for filing your tax returns. This means that contributions for a given tax year can be made up to the final tax filing date the following year.
A sometimes confusing part of SEP IRA contributions is that all SEP contributions for a given tax year are usually made the following calendar year (as the company generates their tax filing), and are often reported to the IRS by the IRA provider on a 5498 the year after that. As a consequence of this reporting timetable, the 5498 shows a SEP contribution as having occurred the year after the tax year for which the contribution is made. This sequence is proper from an IRS perspective, but it requires the company keep track of which contribution corresponds to which tax year and claim the SEP contribution deduction in the correct year.
SEP IRAs must be established by the employer's tax filing deadline (including extensions) for the tax year in which your qualifying contribution(s) will apply.
- Employer contribution % must be equal to all eligible employees.
- Employee elective deferrals and catch-up contributions are not permitted in SEP plans. Only employer contributions are allowed.
- The maximum contribution cannot exceed the lessor of 25% of total compensation of either: $54,000 for 2017 or $55,000 for 2018.
- Compensation up to $270,000 in 2017 of an employee’s compensation may be considered. If you're self-employed, see below as a special calculation to determine contributions for yourself.
For Self-Employed Contributions:
- Calculating SEP IRA contributions for self-employed individuals is tricky, as the salary of the account holder is calculated after the contribution is made. Not including limits, the calculation is 18.587045% (approximately 18.6%) of net profit (Investopedia). Your tax professional should be able to assist you in calculating the exact allowable amount based on your self-employed income for the year.
- You can be self-employed as a sole proprietor or sole practitioner of a company, or employed under a closely-held LLC structure.
Deadline to open a SEP IRA Extended due date of return
Deadline to contribute to a SEP IRA Extended due date of return
|Year||Maximum Contribution||Contribution Deadline|
|2018||$55,000||Extended due date of return|
|2017||$54,000||Extended due date of return|
SEP IRAs must be established by the employer's tax filing deadline (plus extensions) for the tax year to which the qualifying contribution(s) will apply.
This information is not intended to be tax or legal advice, and it may not be relied
on for the purpose of avoiding any federal tax penalties. You are encouraged to seek
tax or legal advice from an independent professional advisor.