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For Individual Investors in the US

ACCOUNT TYPES

Salary Reduction Simplified Employee Pension (SARSEP) IRA Account

A Salary Reduction Simplified Employee Pension IRA is a tax-deferred retirement plan provided by small businesses with fewer than 25 employees. Both the employees and the employer can make contributions to SARSEP IRAs. The contributions are made pre-tax through salary reduction and grow tax-deferred, along with any investment earnings until distribution, usually at the time of retirement.

SARSEP IRAs are subject to the same rules that govern a Traditional IRA.

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Is a SARSEP IRA right for you?

No new plans are permitted. An employer would have had to establish a plan prior to December 31, 1996 to be eligible to contribute. However, an employer that already offers the plan may add new employees.

Tax Features and Investments

What are the tax features? Expand

Employees and employers may contribute pre-tax money to their IRAs through elective deferral contributions. Investments are tax-deferred until you withdraw the money from your account. Generally, withdrawals are taxable as ordinary income. Any withdrawals before age 59½ may be subject to an additional 10% penalty.

How much can I invest? Expand

The annual limit is $20,500 in 2022 and $22,500 in 2023, while a catch up provision allows those who are age 50 and older to contribute an additional $6,500 in 2022, and $7,500 in 2023. Employers may make SEP contributions that cannot exceed the lesser of 25% of the employee’s compensation or $61,000 in 2022 and $66,000 in 2023. Lastly, the participant can also make an annual IRA contribution up to $6,000 in 2022 and $6,500 in 2023 and individuals ages 50 and older can make an additional catch-up contribution of $1,000. The IRA contribution may not be deductible.

What happens if I invest too much? Expand

Investments made to an IRA or retirement account that are above allowable limits are called excess contributions. This can also happen if you were ineligible to contribute in the first place. In either scenario, excess contributions may be subject to additional taxes or penalties.

There may be several methods to remedying an excess contribution, but it’s always best to consult a certified tax advisor to find which solution works best for your situation. Contact us to learn about your excess contribution options with Janus Henderson.

What are the investment minimums? Expand

There is no investment minimum to open the account or for salary reductions. Subsequent employee contributions must be at least $50 unless an automatic investment is established, which can be done for as little as $50 per occurrence.

Are there any investment deadlines? Expand

You can make salary reduction contributions for the specific year in which your contribution was deducted from your paycheck. You can also make annual IRA contributions by your tax filing deadline, excluding any extensions, which is usually April 15 of the year following the tax year for which the contribution was made.

Employer contributions may be made through the tax filing deadline of the employer, which includes any extensions.

What are the fees for a SARSEP IRA account? Expand

There is no cost to open an account and no annual maintenance fees when account minimum thresholds are met.

Withdrawals and Helpful Information

How do I request an account withdrawal? Expand

Depending on the account options you have selected, you may redeem shares by telephone, online or in writing.

Generally, withdrawals from a SARSEP IRA are taxable. There are no penalties on withdrawals after age 59½. Withdrawing prior to age 59½ may result in a 10% early withdrawal penalty and is taxed as current income.

If you need to withdraw assets prior to age 59½, check to see if any of these exceptions to the penalty apply.

Am I required to take money out of the account? Expand

Yes, this is called a Required Minimum Distribution (RMD). If you reach age 72 before the end of 2022, you must take your first RMD by April 1st of the following year. If you turn age 73 before the end of 2023, you must take your first RMD by April 1st of the following year.

Failing to take your RMD could trigger a 25% (or 10% if corrected in a timely manner) excess accumulation penalty from the IRS on the amount of RMD not distributed.

However, if the employee is still working, employer contributions can continue until there’s no longer any compensation from work.

What other information might be helpful to know? Expand

Remember that this account type can accept several types of annual contribution, such as salary reduction/elective deferrals, SEP and IRA contributions. Each type of contribution amount is limited based on the individual’s compensation and the ability to contribute to a retirement account. For additional information, read IRS Publication 560 or seek advice from a professional tax advisor.

The Janus Henderson Universal IRA Disclosure Statement and Custodial Agreement provides complete details about IRA accounts at Janus Henderson.

More Questions?

A Janus Henderson Retirement Specialist can answer your questions.

Contact Janus Henderson

Related Content

ACCOUNT TYPES

Simplified Employee Pension IRA Account

A Simplified Employee Pension Individual Retirement Account (SEP IRA) is a retirement account designed for small business owners.

Learn More

TOOLS & CALCULATORS

Retirement Planner

Get a clear picture of your retirement goals and estimate how much you should save with the Janus Henderson Retirement Planner.

See Tool
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Investing involves risk, including the possible loss of principal and fluctuation of value.

An IRA should be considered a long-term investment. IRAs generally have expenses and account fees, which may impact the value of the account. Non-qualified withdrawals may be subject to taxes and penalties. Maximum contributions are subject to eligibility requirements. For more detailed information about taxes, consult IRS Publication 590 or a tax professional regarding personal circumstances.

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