SEP-IRA Contribution Limits 2011
Contribution limits for a SEP-IRA may be changed each year based on annual cost-of-living adjustments. However, the index used by the IRS to determine the change in the cost-of-living did not increase enough to warrant any changes to the contribution limits for SEP-IRAs for 2011. Therefore, the limits on SEP-IRA contributions are the same for 2011 as they were for 2010.
The maximum contribuiton to a SEP-IRA is 25 percent of compensation. However, in 2011, as in 2010, only the first $245,000 of compensation may be considered when calculating contribution amounts. For example, if a person earns $300,000 per year at a business that contributes 6 percent to its employee's SEP-IRA accounts, the maximum contribution to his SEP-IRA is $14,700, which is 6 percent of $245,000. The remaining earnings of $55,000 may not be used in the SEP-IRA contribution calculations.
There is also a $49,000 maximum contribution limit for both 2010 and 2011 for SEP-IRAs regardless of what percentage the company contributes or how much the employee makes.
There is no provision for catch-up contributions to SEP-IRAs like there are for other IRA retirement plans.
Finally, if the employer has another defined contribution retirement plan, such as a 401k, an annual limitation of $49,000 (for 2010 and 2011) for contributions to all qualified retirement plans applies. In other words, if the employer offers both a SEP-IRA and a 401k plan, the total combined contributions may not exceed $49,000 for the year.
Reference: IRS - Retirement Plans FAQs regarding SEPs
Image: IRS: Form 5305