YOU ASK:

What are the SEP IRA contribution limits for 2006, 2007, 2008, and 2009?

WE ANSWER:

SEP contributions are made at the discretion of each employer, i.e. employers are not required to fund the SEP of their eligible employees unless they decide to do so.

Employer Contribution Limits

For tax year 2009, employers are allowed to contribute up to 25% of their eligible employee's compensation (however not exceeding $49,000 a year). Additionally, the employee's compensation cannot exceed the compensation cap which is $245,000.

Tax Year Maximum Dollar Allocation
2006 $44,000
2007 $45,000
2008 $46,000
2009 $49,000

Table1. SEP IRA employer contribution limits (2006-2009).

Salary-Deferral SEPs

Eligible employees may decide to open a salary-deferral SEP which will allow them to make contributions to their SEP IRAs by deferring part of their salaries on a pre-tax basis. Table 2 illustrates the SEP IRA maximum salary-deferral contributions.

Tax Year Salary-deferral Contribution Catch-up Contribution
2006 $15,000 $5,000
2007 $15,500 $5,000
2008 $15,500 plus COLA increases* $5,000
2009 $15,500 plus COLA increases* $5,000

Table2. Salary-deferral limits for SEP plans (2006-2009)

*Cost-of-living adjustments

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