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SEP IRA Contribution Agreement: What You Need to Know

If you’re a small business owner or self-employed individual looking to save for retirement, a Simplified Employee Pension (SEP) IRA may be a great option for you. However, before diving into contributing, it’s important to understand the SEP IRA contribution agreement.

What is a SEP IRA?

A SEP IRA is a tax-deferred retirement plan that is designed for small business owners, freelancers and self-employed individuals. It allows you to make contributions to your own retirement fund or to the accounts of your employees. As a business owner, you can contribute up to 25% of an employee’s compensation or up to $58,000 per year (whichever is less) to a SEP IRA.

What is a contribution agreement?

A contribution agreement is a contract between the plan sponsor (business owner) and the plan trustee (financial institution) that outlines the terms and conditions of the contributions that will be made to the SEP IRA. It specifies how much money will be contributed, how often contributions will be made, and any other important details related to the contribution process.

Why is a contribution agreement important?

A contribution agreement is important for several reasons. Firstly, it ensures that all parties involved understand the terms and conditions of the contributions being made. This can help prevent misunderstandings or disputes down the line. Additionally, having a contribution agreement in place can help protect the plan sponsor from potential legal liabilities.

What should be included in a SEP IRA contribution agreement?

A SEP IRA contribution agreement should include the following information:

1. The names and contact information of the plan sponsor and the plan trustee.

2. The amount of money that will be contributed to the SEP IRA.

3. The frequency of contributions (such as monthly, quarterly, or annually).

4. The deadline for making contributions.

5. The eligibility requirements for employees to receive contributions.

6. The vesting schedule (how and when employees become entitled to the contributions made on their behalf).

7. Any administrative fees or expenses associated with the plan.


If you’re interested in setting up a SEP IRA for your small business or as a self-employed individual, it’s important to have a contribution agreement in place. This contract will outline the terms and conditions of the contributions being made, which can help prevent misunderstandings and legal liabilities down the line. By working with a financial professional, you can ensure that your SEP IRA contribution agreement is comprehensive and compliant with all applicable regulations.