SEP-IRAs are adopted by business owners to provide retirement benefits for themselves and their employees.
For example, if an employee earns $40,000 in wages, the employer could contribute up to $10,000 to the SEP-IRA account.
[5] Two complications are: SEP contribution limits are computed not from net profit but from net profit adjusted for the deduction for self-employment tax (2019 Form 1040 Schedule C, line 31; 2019 Form 1040, Schedule F, line 34; or 2019 Form 1065, Schedule K-1, box 14, code A).
For example, if a sole proprietor has $50,000 net profit from self-employment on Schedule C, then the "1/2 of self-employment tax credit", $3,532, shown on adjustments to income at the bottom of form 1040, will be deducted from the net profit.
[5] SEP contributions and earnings are held in SEP-IRAs and can be withdrawn at any time, subject to the general limitations imposed on Traditional IRA.
If a participant makes a withdrawal before age 59½, generally a 10% additional tax applies.