Growing Retirement Wealth in an IRA SEP
An IRA SEP is the remarkably easy and smart plan designed to benefit self-employed people and small business owners who want to prepare now for their retirement years. Sole proprietorships, partnerships, S and C corporations and LLCs can qualify and can take advantage of the IRA SEP. The plan has a broad appeal since it is inexpensive to set-up and administer, flexible in that it allows rollovers, and has a greater than expected and discretionary contribution policy. An IRA SEP plan could be established by a company owner with employees or by a single-person company . Contributions are paid directly to an individual retirement account set-up for the benefit of the business owner and each eligible employee. An eligible employee must be at least 21 years old, have worked for the company for at minimum three of the last five years, and received $550 in compensation from the employer for the year. Contributions to an IRA SEP are normally 100% tax deductible, and the investment earnings in an IRA SEP grow tax-deferred. Withdrawals , allowed after age 59 ½ years old, are taxed as ordinary income. Any withdrawals before that age may trigger a 10% IRS penalty in addition to the normal income taxes. Withdrawals must start by age 70 ½ years old. The annual contributions an employer can fund on behalf of the employee to the IRA SEP cannot exceed the lesser of 25% of compensation or $49,000. These same contribution caps will apply to the IRA SEP of a self-employed person, and all contributions are made in cash, not stock. The plan isset up by adopting a SEP agreement and qualified employees opening SEP IRAs. A formal written agreement is drawn up and each qualified employee receives a written copy. The IRA SEP can be established at any point during the tax year up until the due date of the employer’s tax return
IRA SEP – Growing Retirement Wealth
The IRA SEP can be set-up at any timeduring the tax year up until the due date of the employer’s tax return. The administrative costs are low, and for the self-employed person there are normally no administrative costs at all. One requirement of the IRA SEP is that all employees must receive equal benefits. Most employers decide on a large mutual fund company to handle the employee’s IRA SEP. This allows the employees to make investment choices for their own plans, and frees the employer from having to make those decisions. The plan functions in the same way as a pension plan but on a streamlined scale and with no filing required . The IRA SEP can also be rolled over into other kinds of IRAs if employment changes, so it is very portable. It’s an excellent choice for the small company wanting to offer a pension plan, but lacking the resources to establish a conventional kind of plan. The IRA SEP is easy to understand and simple to manage .It was structured to benefit the self-employed and small company owners, and is also a popular choice for LLCs, partnerships, S and C Corporations, and sole proprietorships. Contribution limits are generous in the IRA SEP, and are generally 100% tax deductible. Investment earnings in the IRA grow tax-deferred. Withdrawals can start as soon as age 59 ½ years old, but earlier withdrawal incurrs a 10% IRS penalty in addition to income taxes on the withdrawal The distributions must begin no later than age 70 ½ years of age. An IRA SEP is a good alternative for owners of a small company who would like to help employees prepare for retirement, but are unable to manage a more conventional retirement plan. Since contributions can be up to 25% of the employee’s compensation, there is the opportunity to rapidly grow a retirement nest egg with the IRA SEP.
IRA SEP – Simple to Set Up
The IRA SEP is a newer version of the original individual retirement account, but altered to provide those same functions for business owners and for the self-employed. It is an attractive compromise for any small employer who would like to provide a retirement or pension plan, but does not have the resources to establish a more conventional kind of plan. SEP stand for Simplified Employee Pension and true to its name the IRA SEP is simple to set-up and to manage , at a very low cost. To be eligible for the plan, an employee must be at least 21 years old , have worked for the employer for three of the past five years and been paid at least $550 in compensation. Contribution limits are very generous, up to 25% of the employee’s compensation, but there are no contribution obligations. An employer can change the amount and the frequency of contribution depending on the business profitability every year. The contributions could be put on hiatus if dictated by economic or business conditions. The IRA SEP does not require complicated reporting to the IRS on annual returns, so administration is streamlined. Most employers select a mutual fund company to fund their employee’s accounts. This allows the individual employees to determine their own investment choices. The plan is portable, and can be rolled over into another qualified retirement plan should employment change. Disbursements from the IRA SEP can start as early as age 59 ½ years old, although there is a 10% IRS penalty incurred for earlier withdrawals . And mandatory distributions start no later than age 70 ½ years old. Contributions to the IRA SEP are tax deductible and earnings in the account grow tax-deferred. Because the high contribution limit allows for up to 25% of the employee yearly compensation, there is an excellent opportunity to quickly build retirement savings in the account. The IRA SEP provides solid benefits for employers, employees and for the self-employed, and is well worth considering.