SEP IRA Contribution Limits for 2022

A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $61,000 a year

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Self-employed workers and small-business owners who want an easy and inexpensive retirement plan should consider a Simplified Employee Pension IRA, or SEP IRA for short. SEP IRA plans are easier to establish than other retirement plans and have lower costs to administer.

2022 SEP IRA Contribution Limits

For 2022, a self-employed business owner effectively can salt away as much as $61,000 a year, but no more than 25% of their compensation. (That's up from the maximum of $58,000 in 2021 and $57,000 for 2020.) In comparison, a traditional IRA limits contributions to $6,000 for 2022 for those younger than 50, or $7,000 for those 50 or older thanks to a $1,000 "catch-up" contribution.

Like other individual retirement accounts, these contributions are tax deductible. But contribution rates are required to be uniform for all employees of a company that has a SEP IRA plan, including the owner. So while these plans offer small business owners an opportunity to save much more for their own retirement than they could with a traditional IRA, the catch is they have to contribute funds at the same rate to SEP IRA accounts for all their eligible employees. The rate may change from year to year, a flexibility designed to help companies that may have differences in cash flow. Also note: Contributions must be based only on the first $305,000 of an employee’s (or owner’s) compensation for 2022. This is up from $290,000 for 2021 and $285,000 for 2020.

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SEP IRAs are available for a variety of small-business types, including sole proprietorships, partnerships, limited liability companies, S corporations and C corporations. The plans can be an especially attractive option for a small business with few employees.

Unlike some other retirement plans, a SEP IRA is created primarily as a vehicle for employer contributions, and not payroll deductions. However, employers may also make contributions to their SEP IRA accounts, subject to the limit of traditional IRA contributions. And unlike 401(k) plans, the funds in a SEP IRA cannot be used as collateral for loans. As soon as a contribution is made to a SEP IRA, the money is considered 100% vested and owned by the employee.

To be eligible to participate in an employer's SEP IRA, the IRS says employees must be at least 21 years old, have worked at the business for three of the past five years and have earned at least $650 from the job in 2022. Employers may, however, set less restrictive eligibility rules. For example, they may enroll newly hired employees. But the rules must uniformly apply to all employees. Employers may exclude employees from their SEP IRA plan if the employees are part of a union agreement that includes retirement benefits. They also may bar nonresident alien employees who do not have U.S. wages, salaries or other personal services compensation from the employer.

SEP IRAs vs. Traditional IRAs

SEP IRAs follow many of the same rules as traditional IRAs. You generally must be at least 59 1/2 to take withdrawals from the account without paying a 10% penalty. Also, SEP IRA account owners may take distributions at any time. These distributions are subject to a 10% tax penalty if the account owner is under 59 1/2 years old and does not roll the funds over into another IRA or another employer’s retirement plan.

And once you turn age 72, you will have to start taking required minimum distributions (RMDs). You have until April 1 of the year after you turn 72 to take your first required minimum distribution, but after that you must take RMDs by December 31 of each year (even if you took your first RMD on April 1 of that same year).

Since employers make the contributions, not employees, catch-up contributions for retirement savers 50 and over are not permitted in SEP IRAs. However, employees have the responsibility of making investment decisions about their SEP IRA accounts.

A SEP IRA is easy to open and widely available at financial institutions that offer individual retirement accounts. This type of account is also a good option for a worker with a side gig out of his or her regular job. It would allow the worker to contribute fully to his or her employer's 401(k) and use the SEP IRA for self-employment income.

Congress Considers SEP Changes

Congress is considering legislation aimed at improving retirement savings in the U.S., including provisions that could expand SEP options. Among the changes included in the Enhancing American Retirement Now (EARN) Act, a bill that recently cleared a Senate committee, is a provision that would allow a Roth version of SEP IRAs, enabling employers to create accounts that contain after-tax contributions. Another provision would permit people with domestic employees, such as nannies, to provide them with retirement benefits under a SEP IRA.

Senior Retirement Editor,

Jackie Stewart is the senior retirement editor for and the senior editor for Kiplinger's Retirement Report.