| SEP's
|
What
makes a SEP Plan simple?
Must
all employees participate?
What
are the tax benefits of a SEP?
Do
SEP plans allow employee deferrals?
Does
SEP Plan Participation affect IRA contributions?
When must a SEP Plan be
established and funded? |
| SEPs
Truly Simplified Retirement Plans |
|
SEP
plans fill a basic employer need. Employers establish
retirement plans for very basic reasons. First, the
employer may want to provide retirement benefits for
him or herself. Second, offering a retirement plan may
serve to reward and retain quality employees. And third,
a retirement plan may help attract competent new employees
to the business. If any of these motivations apply to
you, and if the idea of a plan that is extremely simple
to establish and operate attracts you, then the simplified
employee pension -- better known as "SEP" -- may
be the plan for you. |
| What
makes a SEP Plan simple?
|
|
SEP
plans deliver on the promise of simplicity. A SEP plan
eliminates:
Virtually
all of the administrative complexity found in many retirement
plans, lengthy and detailed government reporting, numerous
nondiscrimination testing, and complicated, restrictive
contribution formulas associated with any retirement
plans. |
| Must
all employees participate? |
|
Generally,
all employees are eligible, though the employer may
exclude:
- employees
under age 21 (or the employer may select a lower age),
- employees
who have not worked in (up to) three of the prior
five years,
- certain
union or nonresident alien employees, and
- employees
not earning the minimum annual amount (indexed at
$400 for 1997).
(Employees
meeting the plan's eligibility requirements may not choose
to be excluded from a SEP plan, and an employer must contribute
for them.) |
| What
Are The Tax Benefits of A SEP ? |
|
In
addition to providing a means to save for retirement,
SEP plans also can provide immediate tax benefits, because:
- SEP
plan contributions for the business owner and employees
are tax deductible,
- amounts
contributed remain tax-deferred, as do their earnings,
until withdrawn, and
- withdrawals
(distributions) are taxed as ordinary income under
the Traditional IRA rules.
|
| Do
SEP Plans allow employee deferrals? |
| Some
SEP plans allow employee salary deferrals, which means
that employees elect to have some compensation withheld
and contributed to the plan. But such deferrals are only
permitted in certain SEP plans that were properly established
by December 31, 1996. SEP plans opened after that time
do not allow employee deferrals. (A new kind of plan known
as a SIMPLE plan does allow employee salary
deferrals.) |
| Does
SEP Plan participation affect IRA contributions? |
| Employees
who participate in a SEP plan are considered "active participants"
in an employer retirement plan. As such, the deductibility
of their IRA contribution may or may not be affected,
depending on their income. SEP plan participation does
not, however, reduce or eliminate an employee's ability
to fund an IRA, and all IRA earnings are tax-deferred,
regardless of SEP plan participation. But more important,
an SEP plan offers the advantage of a contribution which
is potentially much larger than an IRA contribution. |
| When
must a SEP Plan be established and funded? |
|
A
SEP plan may be set up and funded at any time prior
to the business's tax return due date, plus extensions. |
