As the owner of a small business , deciding on aÂ Sep retirement plan can be an easy and smart way to offer retirement benefits for your employees. Eligible workers will be at least 21 years old and have worked for the company three of the past five years. The business owner is not required to contribute to the Sep every year. Contributions can be made at the percentage and frequency the business owner prefers , but must be uniform for all participating employees. The cap for contributions is the lesser of 25% of the employee’s annual compensation or $49,000 annually . A Sep retirement plan is normally not required to file annual reports with the government, making it simple for most small businesses to adopt. When the employees participate in aÂ Sep retirement plan they must get certain key documents from the business owner and/or the financial institution serving as trustee for the accounts. These will include an overview of how the SEP operates, a statement on their account reporting fair market value of the investments, and information about the terms of the account explaining how changes are made to the plan and when employees are to receive information about contributions to their plan. When new employees become eligible to participate, they also must be given the written information. Participants cannot take loans from the Sep retirement plan, but are able to do a tax-free rollover into another traditional IRA, another SEP account, and even into another employer’s qualified retirement plan. Normal withdrawals from the Sep retirement plan can begin as soon as age 59 Â½ years old. Taking distributions before that could result in an additional 10% penalty fine . Required distribution from the account must start by age 70 Â½ years old. AÂ Sep retirement plan offers a simple solution for many small companies looking to offer retirement benefits to their employees and enjoy those benefits themselves. It’s easy to administer, low-cost to operate, and beneficial to everyone
Founder of the CHIRA plan, Doug Delaney, discusses the plan with WHHI (Hilton Head Island, SC) Talk of the Town host Ed McCullough. May 2010 See more at www.chirausa.com
True to its name, the Simplified Employee Pension Plan â€“ or SEP â€“ is simple. It’s simple to establish and to administer, simple to establishSEP IRA eligibility for participants, and simple to manage and sustain.Usuallysmaller firms select a mutual fundcompany to hold the account. By doing so, theypermit the employees to figure out their own investment choices within the plan. The employer funds the contributions for the benefit of the qualified employees through a pre-tax wage reduction with very generous contribution limits. The employee may contribute up to 25% of yearly compensation, and have the money invested and growing in a tax-advantagedenvironment within the SEP account. The self-employedindividual does not receive wages, so their contribution limit is arrived at based on net profits from the business venture, allowing for 20% of annual net profit to be contributed to the account . All contributions need to be made by the final tax filing deadline, including extensions, and the account is completely vested once contributions have been made . This makes the account portable, and able to be rolled over into another type of individual retirement account, or in the case of a career change transferred to a retirement planbacked by the new employer. To qualify forÂ SEP IRA eligibility, the employee must meet a few requirements: be at least 21 years old , have worked for the company for three of the last five years, have received a minimum of $550 in compensation. Again, basic and straightforward requirements are the hallmark of a SEP, including establishing theÂ SEP IRA eligibility. The SEP is a choice for the smaller company that may not have the resources to provide employees a more conventional retirement program . The common-sense advantages for the employee aresolid, and the larger contribution limit will allow an opportunity for substantial retirement savings. The plan also provides the employer with an effective tax shelter.
Having aÂ SEP IRA retirement account delivers a safety-net for the employees of smaller companies that might not have the resources to offer their employees with a more standard plan. Called the SEP, the Simplified Employee Pension is true to its name, being simple to set up and manage , withlower costs for both set up and administration, and simplified documentation and record keeping. In the small company plan, qualified employees must be at least 21 years old , have worked for the business for at least three of the prior five years, and been compensated for their work with a minimum of $550. The contribution cap of the plan is an excellent feature. The employer makes contributions to the employee accounts through a pre-tax salary reduction of up to 25% of the employee’s annual compensation, or $49,000, whichever is less. The employer has the option to adjust the contribution percentage or even suspend it, but all contribution percentages must be consistent and contributed foreach and every qualified participant in theÂ SEP IRA retirement plan. Fundamentally, the SEP is a group of traditional IRAs managed for the employees and as such is subject tomany of the same guidelines that govern the traditional form of IRA pertaining to permitted investmentchoices and distribution regulations . Withdrawals from the SEP can commence as early as when the account owner is 59 Â½ years old, although earlier disbursements will incur a 10% penalty in addition to the standard tax responsibility . Mandatory distributions must start no later than at age 70 Â½. The account is entirely vested once the contribution has been made , so the account owner can roll the funds from theÂ SEP IRA retirement account into a different IRA, or in the case of an employment change might decide to transfer the money to the new employer’s sponsored retirement plan.Larger SEP contribution limits can speed up savings as employees prepare for retirement.