- Total contributions to the SEP-IRA of each employee cannot exceed 25 percent of compensation, up to a maximum figure established each year that's adjusted for the cost of living. As of 2010 the maximum is $49,000. The percentage of compensation contributed to SEP-IRAs must be the same for all participating employees. Contributions are immediately owned by employees. There is no vesting schedule.
- An employer must include every employee in the SEP plan except those who meet an exception. Employees who have not provided services during at least three of the past five years may be excluded from the SEP. Part-time workers may be excluded from the SEP if they earned less than a minimum amount established each year that's adjusted for the cost of living. The minimum as of 2010 is $550. A SEP may exclude employees under age 21 and those covered by retirement benefits in a union agreement with the employer.
- Rules for distributions from SEP-IRAs are similar to traditional IRAs. Withdrawals are taxable in the year received. Withdrawals before age 59½ incur an additional 10 percent tax penalty. When employees leave their jobs, they may roll over their SEP-IRAs to traditional IRAs. Withdrawals must begin at age 70½ .
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