The contribution limits to your own SEP plan depend on your net income. If you had a net loss, you can't make any contributions yourself. However, you can still make contributions for your employees. Because a SEP-IRA is a traditional IRA backed by Gold, you may be able to make regular, annual contributions to this IRA, instead of opening a separate IRA. However, any dollar that contributes to the SEP-IRA will reduce the amount you can contribute to other IRAs, including Roth IRAs, during the year.
If you have taxable compensation other than your company, you may be able to contribute to a Roth IRA. Employees who withdraw their excess contribution (plus earnings) before their federal return deadline, including extensions, will avoid the 6% excise tax imposed on excessive contributions to the SEP in an IRA. However, since business owners are responsible for 100% of the contributions to SEP IRAs and must contribute equally and as a percentage to the SEP IRA of each owner and employee, IRAs with SEP are not suitable for all companies. SEP IRAs have the same investment, distribution and reinvestment rules as traditional IRAs, and investments in SEP IRAs increase with deferred taxes until the owner withdraws from the account.
However, if your employer contributes to your SEP IRA and you earn more than a certain amount of income, your contributions to your traditional IRA are not fully tax-deductible. A SEP-IRA account is a traditional IRA and follows the same investment, distribution and reinvestment rules as traditional IRAs. An employer can also choose not to fund an SEP IRA in a given year, provided that all owners and employees are treated equally. Contributions to the SEP IRA are deductible as a business expense on corporate tax returns and, for self-employed individuals, contributions to the SEP IRA are tax-deductible on individual tax returns.
If the SEP-IRA allows non-SEP contributions, you can make regular contributions to your IRA (including recovery contributions to the IRA if you are 50 or older), up to the annual maximum limit. The maximum amount you can contribute annually to a Roth IRA is not affected by having any employer-sponsored plan, such as an SEP IRA. SEP IRAs can help self-employed people and small business owners save for retirement with tax advantages. Owners of IRAs with SEP have relatively few restrictions on the types of securities they can hold in their accounts.
However, the amount of the regular IRA contribution that you can deduct on your income tax return may be reduced or eliminated because of your participation in the SEP plan. Nancy can also make regular, annual contributions to her SEP IRA, if her SEP IRA allows it, or contribute to her Roth IRA at XYZ Investment Co.