What Is the Age Limit for SEP IRA Contributions?
Understand how SEP IRA rules separate contribution eligibility from age. Earned income is the key factor, even when mandatory withdrawals are required.
A Simplified Employee Pension (SEP IRA) is a retirement plan for self-employed individuals and small business owners. These plans allow for higher annual contributions than traditional IRAs, letting employers make contributions for themselves and their eligible employees. A common question for those nearing retirement is how their age might affect their ability to continue building savings in a SEP IRA.
Contribution Eligibility Requirements
To receive a contribution to a SEP IRA, an individual must have earned compensation from the business. Contributions are made by the employer, not the employee, and are based on a percentage of an employee’s compensation. The employer decides what percentage to contribute each year, ranging from 0% up to 25%, and this rate must be applied uniformly to all eligible employees.
Compensation is generally defined as the pay a participant received from the employer for personal services, including wages, salaries, tips, and bonuses. For self-employed individuals, compensation is defined as net earnings from self-employment after deducting one-half of self-employment taxes. The maximum amount of compensation that can be used to calculate the contribution is $345,000 for 2024 and $350,000 for 2025.
An employer can also set minimum eligibility standards. These can require an employee to be at least 21 years old, to have worked for the company in at least three of the last five years, and to have earned at least $750 in compensation for the year (for 2024 and 2025).
The Impact of Age on Contributions
There is no upper age limit for making or receiving contributions to a SEP IRA. As long as an individual is working and receiving compensation from the business, they remain eligible for an employer contribution. This means a business owner or employee who is 75, 80, or even older can continue to have funds contributed to their SEP IRA, provided they are still earning income from the business.
This rule is a result of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. Before this legislation, contributions were prohibited for individuals age 70½ and older. The SECURE Act eliminated this age cap, aligning the rules for SEP and traditional IRAs with those of Roth IRAs, which have never had an age limit for contributions.
The removal of the age restriction allows older workers and business owners to continue building tax-deferred retirement savings for as long as they remain in the workforce. The contribution is still subject to the annual limits, which for 2024 is the lesser of 25% of compensation or $69,000. For 2025, the limit is the lesser of 25% of compensation or $70,000.
Required Minimum Distributions
While there is no age limit to contribute to a SEP IRA, you must begin taking money out at a certain age. These mandatory withdrawals are known as Required Minimum Distributions (RMDs), which ensure taxes are eventually paid on the savings. The age to begin taking RMDs is 73, but this will increase to 75 for individuals born in 1960 or later.
An individual must take their RMD from their SEP IRA even if they are still working and receiving contributions to the account in the same year. The contribution and distribution requirements are separate. For example, a 74-year-old business owner must take their RMD for the year, but their business can also make a SEP IRA contribution for them based on their compensation for that same year.
The RMD amount is calculated annually based on the prior year-end account balance and the individual’s life expectancy per IRS tables. Failing to take the full RMD by the deadline can result in a tax penalty. The deadline is December 31 each year, but the first RMD can be delayed until April 1 of the year after the individual turns 73.