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A SEP-IRA, or Simplified Employee Pension Individual Retirement Account, is a type of traditional IRA that is established by employers or self-employed individuals in the United States as a part of their retirement savings plan. It is one of the various instruments available in the Individual Retirement Account (IRA) industry, which also includes Traditional IRAs, Roth IRAs, and SIMPLE IRAs, among others.

Here are some key features and specifics of a SEP-IRA:

  1. Employer Contributions: Only employers can contribute to a SEP-IRA. Employees are not allowed to make traditional, individual contributions. Employers can make contributions to their own SEP-IRAs if they are self-employed.
  2. Contribution Limits: Employers can contribute up to 25% of an employee’s compensation or up to a specific limit that is revised annually by the IRS, whichever is less. The high contribution limits relative to other IRA types make SEP-IRAs appealing, especially for self-employed individuals.
  3. Tax Advantages: Contributions made by the employer are tax-deductible for the employer. Employees do not pay taxes on the contributions or any earnings until they begin to take distributions, typically after the age of 59½.
  4. Flexibility: Employers have flexibility in determining the amount to contribute each year, allowing for variability based on business performance. This makes it an attractive option for small businesses and self-employed individuals who might have fluctuating incomes.
  5. Eligibility: Employers can establish eligibility requirements, such as age and minimum service years, but they have to be reasonable.
  6. Distributions and Penalties: Like Traditional IRAs, distributions can begin at the age of 59½, and there are penalties for early withdrawal before this age, with some exceptions. Required minimum distributions (RMDs) must commence at age 72.
  7. Simplicity and Low Costs: SEP-IRAs are easier and less costly to set up and maintain compared to other employer-sponsored retirement plans like 401(k)s.
  8. Vesting: Employees are immediately 100% vested in the contributions made to their SEP-IRA accounts.

In the IRA industry, SEP-IRAs hold a significant position, especially amongst small business owners and self-employed individuals, due to their flexibility, higher contribution limits, and tax advantages. It allows businesses to offer retirement benefits to employees without getting entangled in the complexities and costs associated with other retirement plans.