The annual SEP-IRA contribution limits are set at 25% of an employee's compensation, which is capped at $245,000 for consideration in 2009 and 2010. This works out to annual contribution limits of $49,000. These SEP-IRA contribution limits are in addition to money put into a Traditional IRA or Roth IRA. In 2009 and 2010, for instance, a business owner making $100,000 could contribute $25,000 to his or her SEP-IRA ($100,000 x 25% maximum contribution limits = $25,000) plus $5,000 to a Roth IRA for a grand total of $30,000.
SEP-IRA contributions are tax deductible. The money in the account will grow tax-deferred until retirement, at which point the money will be taxed like regular, ordinary income as it is withdrawn. If the money is taken out before the account owner is 59 1/2 years old, there may a 10% additional penalty tax applied. For more information on avoiding this early withdrawal fee, read 8 Ways to Avoid the 10% Early Withdrawal Fee on Your IRA.
For more information, read our Guide to Retirement Account Contribution Limits.
SEP-IRA Contribution Limits for 2009 and 2010
|Year||Maximum Annual Contribution||Maximum Considered Compensation|