SEP IRAs

The Simplified Employee Pension (SEP) IRA is a tax-deferred retirement savings product designed for self-employed individuals. SEP IRAs are available if you have income from either full- or part-time self-employment.

SEP IRAs are easy to establish and maintain. Additionally, potential tax credits and tax-deductible contributions can help SEP IRA owners decrease current taxes, and tax-deferred compounding can help build retirement assets.

Contribution Limits/Rules

All contributions made under a SEP IRA are employer contributions.
An employee cannot defer a portion of his or her salary and contribute it to a SEP IRA. Employers may contribute up to 25 percent of an employee's compensation, or up to $46,000 per participant in 2008, the highest limit allowed by law. For self-employed individuals, compensation is net earnings from self-employment.

Withdrawal Rules
Withdrawals after age 59½ are taxed at your ordinary income tax rate. Withdrawals prior to age 59½ are subject to ordinary income tax, as well as an IRS 10% early withdrawal penalty. However, the IRS will waive this penalty when distributions are used for:

Certain unreimbursed medical expenses
Medical insurance, providing certain conditions are met
A disability, if certain conditions are met
Payments to designated beneficiaries in the event of the death of the IRA owner
Payments received under a Substantially Equal Payment Plan over a five-year period or until age 59½ (whichever is longer)
Qualified higher education expenses
The purchase of a first home

A SEP IRA may be appropriate if you have income from full- or part-time self-employment, or you're an employee of someone who establishes a SEP IRA for their employees.

In addition to SEP IRAs, people with self-employment income are also eligible for Keogh plans, which offer certain advantages not available from SEP IRAs.

Neither TIAA-CREF nor its affiliates offer tax advice. See your tax advisor regarding your personal situation.