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SMALL BUSINESS
JUNE 1, 2018

How Much Can I Contribute to My SEP IRA?

Answered by
Judith Anderson
Senior Vice President, Retirement & Personal Wealth Solutions
Whether you're self-employed or have employees, you may be able to contribute to a Simplified Employee Pension, or SEP IRA. The maximum contribution limit for 2018 is $55,000, or 25 percent of your employees' eligible compensation (20% of your net earnings if contributing to your own account), whichever is less. Contributions can only be made by you as the employer — employees cannot contribute to a SEP IRA — and are generally tax deductible. Depending upon your circumstances, you may be able to contribute significantly more to a SEP IRA than to a traditional IRA.

What potential advantages do SEP IRAs offer?

"SEP IRAs are a flexible choice for business owners," says Judith Anderson, senior vice president, Retirement and Personal Wealth Solutions at Merrill Lynch. "Each year you decide how much to contribute, depending on your capacity." Because SEP IRAs don't require yearly contributions, "a SEP IRA may be a feasible option for businesses with variable cash flow," she says. "In addition, SEP IRAs require less paperwork than many small business retirement plans."
With a SEP IRA, the interest, dividends, employer contributions and other investment earnings have the potential to grow, federal income tax-deferred, until they are withdrawn during retirement. You can also consolidate your retirement assets by rolling over accounts held in former employers' 401(k), 403(b) and governmental 457(b) plans into a SEP IRA. A SIMPLE IRA may also be rolled over into a SEP IRA after you've held your SIMPLE IRA for at least two years (beginning with the year in which the first contribution is made to such account). Of course, consolidating retirement assets isn't right for everyone. Consider all of your choices before deciding whether rolling over may be right for you.Footnote 1
"SEP IRAs are a flexible choice for business owners. Each year you decide how much to contribute, depending on your capacity."
— Judith Anderson, senior vice president, Retirement and Personal Wealth Solutions at Merrill Lynch
One more note: SEP IRA contribution limits are subject to an annual cost-of-living adjustment and may vary from year to year. In addition, contributions to an owner-employee's account and deductions for those contributions may vary based on your net earnings and self-employment tax deduction.
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Footnote 1 You have choices for what to do with your employer-sponsored retirement plan. Depending on your financial circumstances, needs and goals, you may choose to roll over to an IRA or convert to a Roth, roll over to an employer-sponsored plan from a prior employer to an employer-sponsored plan at your new employer, take a distribution or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment and provide different protection from creditors and legal judgments. These are complex choices and should be considered with care and in consultation with your legal and/or tax advisor. Visit http://www.merrilledge.com/retirement/rollover-ira or call a Merrill Edge rollover specialist at 888.637.3343 for additional information about your choices.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
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