SEP IRAs
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SEP IRAs
A "Simplified Employee Pension IRA" is a tax-deferred retirement plan provided by sole proprietors or small businesses, most of which don't have any other retirement plan. Contributions are made by the employer, and unlike the traditional IRA, can be as high as 25% of each employee's total compensation, with a maximum contribution of $46,000 (subject to adjustments for inflation after 2008). For a sole proprietor, this can be a significant opportunity to save for retirement on a tax-deferred basis. Employees with SEP-IRAs can also invest in regular IRAs.
Aside from the higher contribution limits, SEP-IRAs are subject to the same rules as a regular IRA. Contributions and the investment earnings can grow tax-deferred until withdrawal (assumed to be retirement), at which time they are taxed as ordinary income.
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