SEP is an acronym for Simplified Employee Pension. Since their introduction in 1978, SEPs have gained tremendous popularity, particularly as a plan for sole proprietors. This is due to the fact that the only contributions allowed under a SEP IRA are employer contributions. Employer SEP contributions are deposited into an employee’s Traditional IRA account.
What do SEP IRAs offer?
Pre-tax Savings – SEP IRA account contributions are tax deductible for the contributing employer.
Tax-deferred Growth Potential – Taxes on SEP IRA investment earnings are deferred, meaning you need not pay taxes on anything that your SEP IRA earns until you retire or take a distribution.1 For many people, that time is years away, allowing for long-term investment growth. Withdrawals are taxed as ordinary income in the year distributed.
Distributions – SEP IRA assets can be withdrawn without penalty after age 59½.1 Upon withdrawal, ordinary income taxes will apply. Distributions must begin no later than April 1 of the calendar year following the calendar year in which you attain age 70½, even if you are still working.
1Distributions from a traditional retirement account are subject to ordinary income taxes in the year distributed. Distributions prior to age 59½ may incur an additional 10% penalty.
Lincoln Investment and its affiliates do not provide tax information or advice.
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