SEP Plans

What is a SEP Plan?

A simplified employee pension (SEP) plan is an employer-funded retirement plan that allows employers or self-employed individuals the option to make contributions into their own and each eligible employee’s Traditional IRA.

What are the rules for withdrawing money from a SEP plan?

Because SEP contributions go into your Traditional IRA, the Traditional IRA distribution rules apply, including the early distribution penalty tax and required minimum distribution (RMD) rules. Any amounts distributed generally are taxable to you.

Early Distribution Penalty Tax IRAs and retirement plans were created to encourage individuals to save for retirement. For this reason, the law generally imposes a 10 percent penalty tax on the taxable portion of any distributions you take from your IRA before turning age 59½. This penalty tax is in addition to the income tax you’ll owe on your distribution.

Required Minimum Distributions Like all Traditional IRAs, Traditional IRAs containing SEP plan contributions are subject to the RMD rules. The rules state that by April 1 of the year following the year in which you attain age 70½, you  must start taking an RMD. Each year after that, you must take your RMD by December 31. You can always withdraw more than the RMD amount, but if you do not take out at least the RMD amount, you will be subject to a 50 percent excess accumulation penalty tax on the amount you did not distribute.

FAQs are not intended to provide tax advice. Contact a tax professional.