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SEP IRA Contribution Limits for 2009, 2008 - 2004

A SEP IRA (Simplified Employee Pension Individual Retirement Account) is a retirement plan that is found attractive by many small businesses because it is easy to set up and administer, and has relatively low administrative costs.

Under a SEP plan employers make contributions to traditional IRAs set up for their eligible employees. The SEP is funded only by the employer's contributions. Of course, these contributions are subject to certain limits.

The maximum amount that can be contributed to a SEP IRA is 25% of an eligible employee's compensation paid for the year, providing the contribution does not exceed a certain cap.

You can see the respective SEP compensation caps for the different years in the table below:

SEP IRA Limits
Year SEP Coverage Limit SEP Compensation Limit
2004 $450 $205,000
2005 $450 $210,000
2006 $450 $220,000
2007 $500 $225,000
2008 $500 $230,000
2009 $550 $245,000

If you are self-employed, however, there is no salary. Therefore self-employed people are allowed to contribute 20% of the net earnings from their business venture before self-employed tax deduction is included. The SEP Coverage Limit is the minimum earnings level for self-employed people to qualify for coverage by a SEP plan.

The employees are always 100% vested in the money in their accounts.

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