Simplified Employee Pension (SEP)

SEP General

Simplified Employee Pension (SEP) plans can provide a significant source of income at retirement by allowing Business owners (sole proprietor, owners of  S Corp, C Corp, Partnership, LLC) to set aside money in retirement accounts for themselves and their employees.

A SEP does not have the start-up and operating costs of a conventional retirement plan. A SEP does not have the start-up and operating costs of a conventional retirement plan and allows for a contribution of up to lesser of  a) $51,000 (for 2013, $52,000 for 2014), or b) 25 percent of each employee’s pay.

 

  • Available to any size business
  • Easily established by adopting Form 5305-SEP, a SEP prototype or an individually designed plan document
  • No filing requirement for the employer
  • Only the employer contributes

-To traditional IRAs (SEP-IRAs) set up for each eligible employee

-Employee is always 100% vested in (or, has ownership of) all SEP-IRA money

 

Pros:

 

  • Easy to set up and operate
  • Low administrative costs
  • Flexible annual contributions – good plan if cash flow is an issue
  • Employer contributions only
  • An employer generally has no filing requirements.

 

Cons:

  • Employer must contribute equally for all eligible employees
  • Participant Loans: Not permitted. The assets may not be used as collateral.
  • In-Service Withdrawals: Yes, but includible in income and subject to a 10% additional tax if under age 59 1/2.

 

When to set up plan: Any time up to the due date of employer’s return (including extensions)

Last day for Contribution: Due date of employer’s return (including extensions)


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