SEP Retirement Plan – Are You Ready?
The SEP retirement plan is a good option for small businesses and the self-employed, and can provide an excellent source of retirement income. Sole proprietorships, partnerships, S and C corporations and LLCs could all benefit from this plan . Many businesses are eligible for a tax credit of up to $500 per year for each of the first three years covering the expense of starting the plan. The SEP retirement plan is simple to set up , and once in place is simple to operate. Small businesses appreciate the ability to attract a better quality of employee to their job openings by being able to offer the additional incentive of the SEP retirement plan benefits. To be qualified for the SEP retirementplan, the employee needs to be 21 years old, have worked for the employer for three of the last five years and been compensated with at least $550 in wages. Often employers decide on a mutual fund company to administer the account. Each employee can then choose their individual investments from the provided funds, relieving the employer from needing to make those decisions. Contributions are not required, so the employer may decide on the level and frequency of those contributions based on the company’s profitability. Having a SEP retirement plan is a great alternative for smaller companies who might not have the resources to present their employees a more conventional option. The Simplified Employee Pension Plan, or SEP retirement plan makes that available , at a significantly smaller cost and with less reporting rules . There are good benefits for both the employer and the employees. The SEP retirement account allows for much higher contributions, so eligible participants may rapidly build their retirement savings in a tax-sheltered environment. The benefits are fully vested immediately when they are contributed, making the SEP retirement account portable. Workers who change employers are able to roll their Sep balances into another IRA, or may choose to transfer them to another employer’s qualified retirement program
Rapid Contributions with SEP IRA Limits
If you are considering a SEP account for your retirement, learn the SEP IRA limits before making your decision. There are contribution and participation limits to consider . SEP IRA limits on participation are set by the Internal Revenue Service . Specifically, a person can not fall under the definition of a “common law” employee as defined by the Internal Revenue Service . A common law employee is a person who performs services for an employer who has the right to control and direct the results of the work and the way it is done. A critical indicator is the employer’s ability to fire the employee. The SEP IRA limits on contributions are easily defined. Contributions are topped out at 25% of compensation. In 2009, the contribution dollar amount was raised from $46,000 to $49,000 yearly . Contributions are not mandatory in every year, and no certain percentage of contributions needs to be maintained. The employer has the flexibility to make choices . The employer could make a full amount contribution one year and a smaller contribution the following year, or nothing at all. No catch-up contributions are permitted for older employees. Based on the 25% rule, the income threshold is $245,000. Over and above that, no additional contributions are allowed for the year. The same caps on contributions made to an employee’s SEP IRA also apply to contributions funded to a self-employed individual’s account, so SEP IRA limits for the self-employed are approximately 25%, and must be made in cash, no stock. The contribution deadline is normally April 15 of the following year, so participants have until that date to contribute for the previous year’s SEP IRA . Self-employed individuals can no longer contribute to their SEP IRA beginning the year they turn 70 ½ years old . To be qualified for a company SEP plan, the person must be at least 21 years old, have worked for the business for three of the past five years, and have received at least $550 in compensation. Persons meeting those criteria are eligible to participate in the plan. TheSEP IRA limits are high , enabling individuals to rapidly accumulate their retirement savings nest egg.
SEP IRA Limits – Rapid Results
Check out the SEP IRA limits before deciding if the plan is right for you. SEP IRAs were specially structured to benefit the self-employed and smaller businesses . SEPs do not offer a catch-up contribution for older employees, but a huge benefit of the SEP is that is has an especially high contribution limit. In 2009 and 2010, the SEP IRA limits on contributions for qualified employees are the lower of either $49,000 or 25% of annual employee compensation. These high caps allow for rapid accumulation of retirement funds for the participating eligible employees. The same SEP IRA limits apply to contributions made to a self-employed persons SEP IRA. All contributions to the account must be made in cash, rather than in stock or stock options. There are SEP IRA limits on age as well. An individual must be at least 21 years of age to qualify for an employer’s SEP plan, and self-employed individuals who set up a SEP account on their own behalf may no longer contribute to the plan beginning the year they turn 70 ½ years old. However, IRS rules require small business owners to contribute an equal percentage of each eligible employee’s income to his account, so an employee who is 70 ½ or older and otherwise eligible for the SEP plan gets an employer SEP IRA contribution. Contributions are not required every year. The employer does not need to maintain any specific level of contributions, and has freedom to make a decision every year . The employer can choose the percentage of contribution, and often bases it on net profit and economic conditions that impact the business. For employees that have a SEP IRA account , the money is theirs once the employer makes the contribution. Only the employer makes contributions to the account . Since theSEP IRA limits are so generous , the plan makes it possible for participants to quickly accumulate their retirement nest egg