You must contribute for each employee eligible to participate in your SEP, even if they are over 70 and a half years old. However, the employee must also accept minimum distributions. The deadline for establishing and contributing to an SEP IRA depends on when your company files its income tax returns. Since the employer makes the contributions, the amounts are related to the salary or salaries of the employees.
It's not uncommon for employees to immediately accept distributions as soon as contributions to the SEP are made. The custodian sets up an individual retirement account (IRA) for each employee for the employer to make contributions. But if you can make a contribution to the IRA, should you? Or would it be better if you saved in a taxable account? As you approach retirement age, it's essential that you start thinking about your options for withdrawing money from your SEP IRA. However, since you would be considered an active participant in a business plan, this may prevent you from requesting a tax deduction for an IRA contribution.
The maximum contributions you can make to an IRA can change from year to year, from plan to plan, and from income to income. The SEP IRA does not allow you to make contributions to catch up at age 50, as is the case with other IRAs, because the contributions are made by the employer to the SEP, not by the employee. Each spouse can make a contribution up to the current limit; however, the total of your combined contributions cannot exceed the taxable compensation stated on your joint return. Taxes will be due on that contribution when it finally leaves the account, but if the taxpayer expects to be in a lower tax bracket at the time of the withdrawal, it will have been worth taking advantage of the tax relief while working.
The establishment of new SAR-SEPs after 1996 was not allowed, but those that already existed were allowed to continue. However, a related provision, which received less attention, allows account owners to continue making contributions to traditional IRAs after age 72, as long as they have earned income. My goal is to help you take the guesswork out of planning for retirement or find the best insurance coverage at the lowest rates for you. The Simplified Employee Pension Account (SEP) is an IRA for small business owners with one or more employees or anyone with independent incomes (people who are self-employed).