Employers set up simplified employee pension individual retirement arrangements, or SEP IRAs, as a way to contribute to their employees' retirement savings. SEP IRAs can accept both employer contributions and employee contributions. The employer contributions are made with pre-tax dollars while the employee contributions are treated as if the contributions were made to a traditional IRA. Whether you can contribute for a previous year depends on your filing deadlines and how much you've already contributed.
If you work for an employer that offers a SEP IRA, you can make your contributions as an employee as late as your tax filing deadline, not including extensions. This means that most years, you must get the money deposited by April 15 of the following year. In some years when April 15 falls on a weekend or holiday, you have an extra day or two because the tax filing deadline is extended.
If you're self-employed, you're the one making both the employee and the employer contributions. When you make the employer contributions, you've got a later deadline. Instead of your original tax filing deadline being the absolute cutoff, you can still contribute -- and deduct your contributions -- up to your tax filing deadline including extensions. So, filing for an extension extends how long you have to make the employer portion of your SEP IRA contribution for the previous year.
When you make your contributions to the SEP IRA for the previous year, indicate that on the contribution form. Because contributions made between the start of the year and the tax filing deadline, including extensions, could count for either the current year or the previous year, the IRS instructs financial institutions to count the contribution for the current year unless otherwise indicated. For example, if you contribute in February 2013, your bank will count it for the 2013 tax year unless you make it clear you want it counted for the 2012 tax year.
You can only contribute to your SEP IRA for the previous year if you haven't already maxed out your contributions. For employee contributions, the limit is the same as the traditional and Roth IRA limits -- $5,500 if you're under 50 and $6,500 if you're 50 and older as of 2013. For example, if you've already put in $6,500 in your Roth IRA, you can't add any more to your SEP IRA as an employee. For the employer portion, it's limited to 25 percent of compensation or $51,000 as of 2013, whichever is less. If you're self-employed, special rules apply, and you're actually limited to 20 percent of your net earnings, which is counted before taking out the SEP IRA contribution for yourself.
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