What it is The Advantages Who is eligible What it isn't Contributions What It Is A SARSEP-IRA, or Salary Reduction SEP-IRA, is a tax-deferred retirement plan provided by sole proprietors or small businesses with fewer than 25 employees. Contributions are made by both the employee and the employer. In a SARSEP-IRA, contributions and the investment earnings grow tax-deferred until withdrawal (assumed to be retirement), at which time they are taxed as ordinary income. SARSEP-IRAs are subject to the same rules as a regular IRA. Employers can offer both SEP-IRAs and SARSEP-IRAs to employees, who in turn are allowed to invest in regular IRAs as well. New SARSEP-IRAs couldn't be established after December 31, 1996. They were replaced by the Savings Incentive Match Plan for Employees IRA, or SIMPLE-IRA. The Advantages Tax-Deferred Contributions and Earnings Your contributions are taken pre-tax, reducing your taxable salary, and both the contributions and earnings can grow tax-deferred until they are withdrawn. Tax-deferred contributions and earnings make up the best one-two punch in investing. Compare the Results Can Also Invest in SEP-IRAs and IRAs Other than the complexity involved in keeping track of so many different plans, this is a big boost for employees looking to save for their retirement. Employer and Employee Contributions Both employers and employees contribute to SARSEP-IRAs, making them similar to 401ks. Many consider these employer contributions the real attraction of the SARSEP-IRA account. In a plan where employer contributions are included, every dollar goes straight to your total return! Who Is Eligible Depending on your company's rules, you may be eligible to contribute to a SARSEP-IRA in any year you earn a salary and are a regular employee. SARSEPs were designed for firms with fewer than 25 employees, and over 50% of the firm's employees must participate. What It Isn't See 401 k, SEP-IRA, SIMPLE-IRA, and Keogh to learn how other tax-deferred retirement plans offered by businesses differ from a SARSEP-IRA. To see which retirement plan is right for your business,click here. Contributions Employee contributions are limited to $10,500 annually, plus your employer's contribution. If employers also made contributions to a SEP-IRA, the combined contributions can't exceed the lesser of 15% of an employee's total compensation or $30,000. The tax information provided is for informational purposes only and is not intended, and should not be construed, as tax advice or a recommendation. Intuit does not provide legal, tax, or investment advice and you should consult with a professional tax advisor about your individual circumstances.