SEP IRAs are a retirement funding vehicle available for businesses that can afford to fully sponsor the account. Independent contractors and self employed individuals qualify to utilize SEP IRAs. SEP IRAs allow for greater contribution limits than traditional IRAs or Roth IRAs.

SEP IRAs have contribution limits as high as $41,000 or 25 percent of net income a year. Contributions into SEP IRAs are tax deductible offering another benefit to these accounts. The higher contribution limits allow individuals to accumulate a large nest egg in a short amount of time.

Businesses that choose to utilize SEP IRAs must include eligible employees into the plan. Contributions into these accounts are contributed by the business, not by the employee. Eligible employee must have their own account which the employer contributes to. The contribution amount may vary from 0 to 25 percent of annual compensation but must remain at the same level for each employee. Contributions made on an employee's behalf are tax deductible.

Criteria for Employees Eligible for SEP IRAs

Employees eligible to utilize SEP IRAs are determined by three factors. First, the employee must be over 21 years of age to be eligible. In addition to being 21 years old, the employee must have at least three years of service out of the past five. As well, the employee needs to have earned at least $450 from the employer for the year. An experienced SEP IRAs provider should be able to help you determine if these plans are right for you.