A SEP (Simplified Employee Pension) IRA works the same as a Traditional IRA for Travel Agents, but it's tailored towards business owners, self-employed individuals and employees where the employer opens and contributes on their behalf. According to the IRS, if you're a business owner and have eligible employees (read below), you must contribute an equal percentage of your employee's income that you're contributing to your own. Meaning if you want to contribute 20% of your income to a SEP IRA, then you have to have to contribute 20% of the employee's income to their SEP IRA. This is the most common reason why self employed individuals and small business owners only open a SEP IRA if they have few or no employees.
Employer contributions are considered tax deductions for the travel agency's annual income taxes. Like a Traditional IRA, you defer paying taxes on contributions & earnings until retirement.
The main difference between a SEP IRA and a Traditional IRA, is that you can contribute up to 25% of your income or a maximum contribution limit of $55,000. That's almost 10 times the yearly Traditional IRA contribution. However, unlike a Traditional IRA, the contribution limits do not increase at age 50. Every year, you have the flexibility of deciding to contribute more, less or nothing at all. In addition to a SEP IRA, you can also open a Traditional or Roth IRA on your own.
When it comes to withdrawing, a SEP IRA follows the same rules of a Traditional IRA. You can start withdrawing from your SEP IRA tax-free and penalty-free after age 59.5. You'll also be required to start withdrawing RMD's (required minimum distributions) at age 70.5. If you're under 59.5, a SEP IRA allows you to withdraw up to $10,000 without the 10% early-withdrawal penalty (you will still owe taxes) to pay towards a qualified first-time home purchase (may also be used for child, grandchild, parent or other ancestor.), higher education expense, unreimbursed medical expense in access of 10% of gross income, health insurance premiums while unemployed and a qualified disability.
Employees must be allowed to participate if they're over 21, earned at least $600, and have worked for you at least 3 of the past 5 years. However, employers have the ability to set less restrictive eligibility rules if they want. Employees own and manage their accounts, but cannot contribute to their own accounts.