Simplified Employee Pensions, known as SEPs, represent an easy, low-cost retirement plan option for employers. Instead of establishing a separate retirement plan, in a SEP the employer makes contributions to his or her own Individual Retirement Account (IRA) and the IRAs of his or her employees, subject to certain percentages of pay and dollar limits. Employers who establish SEPs can – make tax deductible contributions to their own and their employees’ IRAs. Omit or reduce contributions in years when contributions are unaffordable and vvoid the administrative costs and the reporting requirements of conventional plans. Whether a SEP is appropriate for your business will depend on factors such as revenue, firm size and the age, compensation and retirement needs of the business owner and work force. You may want to discuss other retirement plan options with a professional advisor. What is a SEP-IRA?SEPs are retirement programs established by you, as an employer, which allow you to provide retirement benefits for yourself and your employees without paying the start-up and operating costs of conventional plans. Here are some of the advantages for you as an employer. A SEP can provide a significant source of income at retirement. Contributions to a SEP are tax deductible and your business pays no taxes on the earnings on a SEP’s investments. You are not locked into making contributions in future years. You can decide each year whether to pay into the SEP and how much to contribute. Once you put money into a SEP you have no further responsibility for the amounts contributed. The funds are managed by a financial institution. A SEP can be established and operated without the administrative expenses, consulting fees or commissions usually associated with maintaining a conventional retirement plan. You ordinarily do not have to file any documents with the government. SEPs can be set up by sole proprietors, partnerships and corporations, including S corporations. You can deduct contributions to a SEP for a previous tax year if you make contributions by the due date of the employer’s tax return, including any extensions. Advantages for Employees of a SEPThe money you contribute to your employees’ SEP accounts, as well as the investment earnings, belongs to them, even if they stop working for you. Employers’ contributions to the SEP-IRA are not included in employees’ income for income tax purposes. Employees pay no taxes on the amounts in their SEP accounts until they start withdrawing the funds. In case of an employee’s death, the assets in a SEP will go to someone the employee has chosen. Employees can change the financial institution where their SEP is invested. SEP contributions can continue until employees retire, but they must start withdrawing assets from a SEP when they reach age 70?. How to Set up a SEPYou can set up a SEP by using the Internal Revenue Service’s “Model SEP” agreement Form 5305-SEP. All you have to do is the following things – Fill out Internal Revenue Service Form 5305-SEP, a quarter-page form with six blank spaces. This form is not filed with the Internal Revenue Service. Who Must Be Included in a SEPGenerally, any employee who performs services for certain affiliated or commonly controlled employers (see the discussion on page 6 regarding these terms) must be included in a SEP. However, there are five exceptions to this general rule. Employers may exclude from the SEP – Employees who have not worked for the company during three out of the last five years. SEP InvestmentsFinancial institutions authorized to hold and invest SEP contributions include banks, savings and loan associations, insurance companies, certain regulated investment companies, federally-insured credit unions and brokerage firms. SEP contributions can be put into stocks, mutual funds, money market funds, savings accounts and other similar types of investments. You and your employees will receive a statement from the financial institutions investing your SEP contributions both at the time you make the first SEP contributions and at least once a year after that. Each institution must provide a plain-language explanation of any fees and commissions it imposes on SEP assets withdrawn before the expiration of a specified period of time. Simplified Employee Pension Lawyer Free ConsultationWhen you need help from a business lawyer on a SEP matter, call Ascent Law for your free consultation (801) 676-5506. We want to help you.
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About MeIn 2009 I was creating marketing channels for barbie dolls in Nigeria. Spent a weekend implementing dogmas in Naples, FL. Won several awards for writing about toy trucks in Mexico. Spent 2001-2007 analyzing deodorant in Pensacola, FL. Spent 2001-2004 researching heroin in Miami, FL. Enthusiastic about writing about clip-on ties in Naples, FL. Archives
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