How much are SEP employees cont from employer
We are opening up a SEP IRA for our client.
The form states employer cont. to be lesser of 25%/$58,000 for 2021.
But it is not clear on the contributions for employees.
questions:
1. if the employer contributes 58k to his SEP (which they could do), do they have to contribute the same amount for each employee?
2. If the 58k comes out to be 19.3% of the employer, does the employer have to contribute 19.3% to each employee?
3. Can the employer just contribute 5% or 10% or any percentage they want to the employees SEP?
4. If also states that the employer can contribute to an employees IRA, instead. So can the employer who contributed 58k to his SEP, can they only contribute up to 6k or 7K to the employees IRA (depending on age)?
5. There is no matching in a SEP, correct?
6. Is the 5305-SEP IRS form the correct form to fill out and if so, it has no place for what the employer is going to contribute to the employees?
Thank you very much and happy New Year 🙂
Douglas
Permalink Submitted by William Tuttle on Mon, 2022-01-03 22:36
All your questions can be summed up with one answer. An employer must use the exact same SEP IRA base contribution percentage for all employees including themselves.
However, a self-employed individual’s contribution is calculated using a special rate on their net earnings from self-employment. See IRS Publication 560, Chapter 6. Table and Worksheets for the Self-Employed.
A SEP IRA is the least advantageous employer retirement plan if the employer wants to minimize staff contribution costs.