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A SEP is a Simplified
Employee Pension
plan. Because this is a simplified plan,
the administrative costs should be lower
than for other, more complex plans.
Under a SEP, employers make
contributions to traditional Individual
Retirement Arrangements (IRAs) set up
for employees (including self –employed
individuals), subject to certain limits.
To establish a SEP, you:
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Can be a business of any size,
even self-employed.
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Must adopt a SEP plan document.
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Generally cannot have any other
retirement plan.
Note: Here are some tools to help you
start up your SEP.
Advantages:
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Easy to set up and operate -
usually just a phone call to a
financial institution gets
things started.
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Administrative costs are low.
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Plan can have flexible annual
contribution obligations – a
good plan if cash flow is an
issue.
Under a SEP, you, the employer, make
contributions to traditional IRAs
(SEP-IRAs) set up for each of your
eligible employees. A SEP is funded
solely by employer contributions. Each
employee is always 100% vested in (or,
has ownership of) all money in his or
her SEP-IRA.
How does a SEP work?
Jed works for the Quincy Chintz
Company. Quincy decides to establish a
SEP for its employees. Quincy has chosen
a SEP because the chintz industry is
cyclical in nature, with good times and
down times. In good years, Quincy can
make larger contributions for its
employees and in down times it can
reduce the amount. Quincy knows that
under a SEP, the contribution rate
(whether large or small) must be uniform
for all employees. The financial
institution that Quincy has picked to
work with for its SEP has several
investment funds for the Quincy
employees to choose from. Jed decides to
divide the contribution to his SEP-IRA
among three of the available
funds. Because only employer
contributions are permitted, Jed cannot
also make contributions under the SEP.
A SEP has a life cycle with four
distinct stages. Click on the below
links to review additional information
on each of the life stages of a SEP.
SEP Checklist (IRS)
It is important to review the
requirements for operating your SEP
every year. This checklist has been
designed as a diagnostic tool to help
you keep your SEP in compliance with
important tax rules.
SEP Fix-It Guide (IRS)
Tips on how to find, fix, and avoid
common mistakes in SEP plans.
See Resources
- IRA-Based Plans for publications,
frequently asked questions, etc.
Information courtesy of www.irs.gov
For more information, contact us at 512-462-3704 or
info@bluepacificwealth.com .
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