What Is a SEP-IRA

• A SEP is a simplified employee pension, which is a retirement plan designed for small businesses. An employer establishes a SEP plan for the company. In turn, each employee establishes an individual SEP-IRA. Retirement contributions are made into the SEP-IRA by the company. Once inside of the SEP-IRA, all monies are completely owned by the SEP-IRA account holder.
  
  

SEP-IRA Withdrawals

• Unlike other retirement plans, like a 401k, SEP-IRA accounts are not held with a company designated plan custodian. Rather, each SEP-IRA account is under the full control of the employee. The only differences between a traditional IRA and a SEP-IRA is that a SEP-IRA permits employer contributions on behalf of the employee, and a SEP-IRA does not allow for employee contributions.
  
  

IRA Withdrawal Rules

• The withdrawal rules for a SEP-IRA are the same as the withdrawal rules for a traditional IRA. Money inside of an IRA grows tax-deferred. However, all money withdrawn is taxable and is taxed at ordinary income tax rates. In addition, if the account owner is under 59 1/2, an additional 10 percent tax penalty may apply.
  
  

SEP-IRA and Employment

• The more common 401k retirement plan typically requires that the employee no longer be employed by the company before the employee can withdraw money from the plan. However, employers are forbidden from restricting withdrawals from a SEP-IRA or making participation a condition of employment.