SEP IRA: Simplified Employee Pension Plan

Simplified Employee Pension Plans (SEP IRAs) help self-employed individuals and small-business owners get access to a tax-deferred benefit when saving for retirement. 

Plan Features

Tax advantages

  • Tax-deferred growth potential
  • Tax-deductible contributions

Eligibility

  • Must be sole proprietor, a business owner, in a partnership, or earn self-employment income by providing a service

Contribution Rules

  • Must be made by the employer
  • Can vary each year between 0% and 25% of compensation (maximum $51,000 for 2013 and $52,000 for 2014), and each eligible employee must receive the same percentage

Establishment Deadline

April 15 tax filing deadline for most self-employed individuals and small-business owners (including any extensions)

Administrative Responsibilities

  • Employee notification of employer's contribution
  • Employers must fill out and retain Form 5305 SEP in their records.
  • No plan tax filings with IRS

Employee Responsibilities

  • Each eligible employee must open their own an individual SEP IRA account. Generally, employees must be allowed to participate if they are over age 21, earn at least $550 annually, and have worked for the same employer in at least three of the past five years

Withdrawals

  • Minimum required distributions starting at age 70½ 10% early withdrawal penalty if under age 59½, subject to certain exceptions

Investment options

  • A wide range of ‘no load’ mutual funds, stocks, bonds, ETFs, and FDIC-insured CDs

Support and guidance

  • One-on-one guidance along with research and tools to help you create a long-term plan and make investment selections for the plan

Note: Information deemed accurate but not guaranteed. All investing is subject to risk, including the possible loss of the money you invest.

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