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A SEP plan allows employers to contribute to traditional IRAs (SEP-IRAs) set up for employees. A business of any size, even self-employed, can establish a SEP.
Think a SEP might be the right fit for you and your business? Book a consultation now!
Simplified Employee Pension (SEP) plans can provide a significant source of income at retirement by allowing employers to set aside money in retirement accounts for themselves and their employees. A SEP does not have the start-up and operating costs of a conventional retirement plan and allows for a contribution of up to 25 percent of each employee's pay.
How does a SEP work?
Jed works for the Rambling RV Company. Rambling RV decides to establish a SEP for its employees. Rambling RV has chosen a SEP because the RV industry is cyclical in nature, with good times and down times. In good years, Rambling RV can make larger contributions for its employees and in down times it can reduce the amount. Rambling RV's contribution rate (whether large or small) must be uniform for all employees. The financial institution that Rambling RV has chosen for its SEP has several investment funds from which to choose. Jed decides to divide the contribution to his SEP-IRA among three of the available funds. Jed, an employee, cannot contribute because SEPs only permit employer contributions.
Pros and Cons:
Easy to set up and operate
Low administrative costs
Flexible annual contributions – good plan if cash flow is an issue
Employer must contribute equally for all eligible employees
Who Contributes: Employer contributions only.
Contribution Limits: Total contributions to each employee's SEP-IRA are limited.
Filing Requirements: An employer generally has no filing requirements.
Participant Loans: Not permitted.
The assets may not be used as collateral.
In-Service Withdrawals: Yes, but includible in income and subject to a 10% additional tax if under age 59 1/2.
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