SEP IRA

To get detailed instructions see Establish Your Plan, or call us at 800-435-4000 if you have questions.

Employers with no eligible employees: you may use the on-line system to open your plan, upload your employer documents, and set-up your personal SEP account.

Employers with eligible employees:  You must complete the employer paperwork and mail in all the forms.  You must also provide your employees with SEP IRA applications, and return completed paper applications to us, to open all the employee accounts.

A Simplified Employee Pension Plan (SEP IRA) is specifically designed for self-employed individuals and small business owners who want to save for retirement without getting involved in complex plan administration. If you are self-employed, have a side gig, or have few employees, and if you want flexibility in the amount you contribute annually—particularly if you want to make high contributions—a SEP IRA might be right for you.

Almost any type of business is eligible to establish a SEP IRA, from self-employed individuals to multi-person corporations (including sole proprietors, partnerships, S and C corporations, and limited liability companies [LLCs]), tax-exempt organizations, and government agencies.

Employer contributions are tax-deductible. Earnings grow tax-deferred and are not taxed until they are withdrawn.

A SEP IRA is funded with employer contributions only. It does not need to be funded annually, but if you have employees and contribute for yourself, you must contribute for all eligible employees, including those who have terminated employment during the year. Full vesting is immediate.

Employee eligibility - special information for business owners with employees:

• Each employee must be included in the plan if they are an individual (including the employer) who:
  • Has reached age 21.
  • Has worked a minimum of three of the
    previous five years.
  • And earned at least $750 in the year you are making the contribution for (either 2023 or 2024).
• An employer can also exclude union employees subject to a collective bargaining agreement, as well as non-resident aliens.
• An employer can use less restrictive participation requirements than those listed above but not more restrictive ones. And the employer must also meet all the eligibility requirements listed in their SEP Adoption Agreement.

Use our Contribution and Eligibility Calculator to model which employees may be eligible , as well as contributions to both business owner(s) and employees, if applicable.

Employers may contribute up to 25% (20% for sole proprietorship businesses) of each eligible employee's income, but no more than $69,000 per person for 2024 (or $66,000 if the contribution is for 2023). The business owner has complete flexibility in contributions, as long as each employee (including the owner) receiving a contribution meets the plan eligibility requirements in the Adoption Agreement. Employers can change the percentage contributed every year, skip years entirely and even contribute one year and then never again. Use our Contribution and Eligibility Calculator to model contributions to both business owners and employees, if applicable.

A SEP IRA can be opened and contributions made until the employer's actual tax-filing deadline, including any extensions.

Plans must be established by the tax-filing deadline of the business (generally April 15, plus extensions) in order to contribute for that tax year. This is also the deadline for annual contributions.

SEP IRAs are easy to set up and maintain, and no tax filing is required. Schwab reports all contributions and end-of-year fair market value on Form 5498 by May 31 each year.

You can start making penalty-free withdrawals from your account after age 59½. If you do not start Required Minimum Distribution (RMD) withdrawals by age 73, you may be subject to pay a penalty.

The new SECURE 2.0 reduces the 50% penalty for missing an RMD effective for RMDs in 2023, it does not impact missed RMDs in 2022. Under SECURE 2.0 if you don't take your RMD by the IRS deadline, a 25% excise tax on insufficient or late RMD withdrawals applies. If the RMD is corrected timely, the penalty can be reduced down to 10%. Follow the IRS guidelines and consult your tax advisor.

There are certain exceptions for which you can withdraw funds before age 59½ without taking a 10% penalty, including a rollover to another IRA, some higher education expenses, qualified first-time home purchase expenses, death, disability, and certain medical expenses, however, income taxes may still be due.

SEP IRA plans (Simplified Employee Pension) are designed to allow small-business owners or the self-employed to make sizable contributions to a retirement plan without filing a tax form. SEP IRAs require little administration.

Employers may contribute up to 25% (20% for sole proprietorship businesses) of each eligible employee's income, but no more than $69,000 per person for 2024 (or $66,000 if the contribution is for 2023). The business owner has complete flexibility in contributions, as long as each employee (including the owner) receiving a contribution meets the plan eligibility requirements in the Adoption Agreement. Employers can change the percentage contributed every year, skip years entirely and even contribute one year and then never again. Use our Contribution and Eligibility Calculator to model contributions to both business owners and employees, if applicable.

Rollover or transfer rules for a SEP IRA are the same as traditional IRA plans. That means you can roll over funds to a traditional IRA or any qualified retirement plan, such as a 401(k).

Distributions or withdrawals from a SEP IRA are penalty-free after age 59½ and other traditional IRA exceptions to the penalty also apply.  Of course, ordinary income taxes may still be due. If you do not start Required Minimum Distributions (RMDs) by age 73, you pay a penalty of 25% to 10%.

There are certain exceptions for which you can withdraw funds before age 59½ without taking a 10% penalty, including a rollover to another IRA, some higher-education expenses, qualified first-time home purchase expenses, death, disability, and certain medical expenses.

Download, print, and distribute the following documents to each eligible employee.

Once you have established your Schwab SEP IRA plan, opened your own SEP IRA, and opened SEP IRAs for eligible employees (as applicable), you may begin making contributions.

• Online: If you do not have employees, you can contribute to your account online by transferring funds from your Schwab brokerage account into your SEP IRA (login required). Contributions for employees cannot be made online.
• By mail: Send one check payable to Charles Schwab & Co., Inc., FBO "Your Company Name" along with a Contribution Transmittal Form listing:
  • Each participant's account number (including your own)
  • The exact amount to be deposited per account

Be sure your check total matches the total amount of participant contributions. Mail your check and the Contribution Transmittal Form to the nearest Schwab operations center listed below:

Charles Schwab & Co., Inc.
P.O. Box 628291
Orlando, FL 32862-8291

Charles Schwab & Co., Inc.
P.O. Box 982600
El Paso, TX 79998-2600