A SEP IRA Does NOT Have to Be Set-up By Year-End

By Joe Cicchinelli, IRA Technical Expert
Follow Me on Twitter: @JoeCiccEdSlott

As we approach the end of 2014, we have been telling you about all of the things that you need to do with your retirement accounts before year-end. As if you weren’t busy enough at this time of the year, there are many things that must be done by December 31, 2014 to avoid problems and potential IRS penalties. These issues, which we have written about recently at the Slott Report, include:
 

• Avoid the 50% Penalty By Asking These10 Questions before Year-End
• 5 Steps to Eliminate a 2014 Estimated Tax Penalty Before Year-End With Your IRA
• Don’t Miss Taking a Distribution from Your Inherited IRA by Year-End
• Don’t Try to Take a Lump-Sum Distribution from a Qualified Plan After Thanksgiving

If you are a business owner and are thinking about setting up a SEP (Simplified Employee Pension) for your business for 2014; relax – it does not have to be set-up by year-end.

A SEP offers you and your employees a tax­-favored way to save for retirement. Even if you are a sole proprietor with no employees, you can deduct contributions you make to the SEP for yourself. The SEP limit for 2014 is 25% of up to $260,000 of compensation, limited to a maximum annual contribution of $52,000. SEP contributions are deposited into each eligible employee’s IRA (including a SEP IRA).

Unlike qualified retirement plans, such as a profit sharing plan or 401(k) plan that must generally be set-up by December 31, SEPs don’t have this deadline. Instead SEPs can be established in 2015 for 2014. Specifically, a SEP can be established as late as your business’ tax-filing deadline, including extensions. So, if your business files for an extension to file its taxes for 2014 until October 15, 2015, then you have until October 15, 2015 to set-up and fund the SEP for 2014.