Looking for an easy and low-cost retirement plan?

Why not consider a SEP?

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. Under a SEP, an employer contributes directly to traditional individual retirement accounts (SEP-IRAs) for all employees (including themselves). 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.

Advantages of a SEP

• Contributions to a SEP are tax deductible and your business pays no taxes on the earnings on the investments.
• You are not locked into making contributions every year. In fact, you decide each year whether, and how much, to contribute to your employees’ SEP-IRAs.
• Generally, you do not have to file any documents with the government.
• Sole proprietors, partnerships, and corporations, including S corporations, can set up SEPs.
• You may be eligible for a tax credit of up to $500 per year for each of the first 3 years for the cost of starting the plan.
• Administrative costs are low.

Employee – An “employee” is not only someone who works for you, but also includes you if you receive compensation from the business. In other words, you can contribute to a SEP-IRA on your own behalf. The term also includes employees of certain other businesses you and/or your family own and certain leased employees.

Eligible Employee – An eligible employee is an employee who:

1. Is at least age 21, and
2. Has performed service for you in at least 3 of the last 5 years.

All eligible employees must participate in the plan, including part-time employees, seasonal
employees, and employees who die or terminate employment during the year.

Your SEP may also cover the following employees, but there is no requirement to cover them:

• Employees covered by a collective bargaining agreement that does not provide for participation in the plan, if retirement benefits were the subject of good faith bargaining;
• Nonresident alien employees who did not earn income from you; or
• Employees who received less than $600 in compensation during the year (subject to cost-of-living adjustments).

Compensation – The term generally includes the pay an employee received from you for a year’s work. As the owner/employee, your compensation is the pay you received from the company. You must follow the definition of compensation included in your plan document.