A Simplified Employee Pension Individual Retirement Arrangement (SEP IRA) is a variation of the Individual Retirement Account used in the United States. SEP IRAs are adopted by business owners to provide retirement benefits for the business owners and their employees. There are no significant administration costs for self-employed person with no employees. If the self-employed person does have employees, all employees must receive the same benefits under a SEP plan. Since SEP accounts are treated as IRAs, funds can be invested the same way as any other IRA.

The deadline for establishing the plan and making contributions is the filing deadline for the employer's tax return, including extensions.

SEP-IRA funds are taxed at ordinary income tax rates when qualified withdrawals are taken after age 59 1/2 (as for traditional IRAs). Contributions to a SEP plan are deductible; they will lower a taxpayer's income tax liability in the contribution year.

Contribution limits

SEP-IRA contributions are treated as part of a profit-sharing plan. For employees, the employer may contribute up to 25% of the employee's wages to the employee's SEP-IRA account. For example, if an employee earns $40,000 in wages, the employer could contribute up to $10,000 to the SEP-IRA account.

*Consult your tax adviser, legal counsel, and/or insurance agent for advice and information concerning your particular situation and your eligibility for IRA's. First National Bank representatives may not give legal or tax advice.