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)