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Simplified Employee Pension - SEP

Simplified employee pension (SEP), or business owner retirement plan, plan provides a significant source of income at retirement by allowing business owner to set aside money in retirement accounts for business owner and their employees as well as self-employed. A SEP plan provides employers with a simplified method to make contributions toward the employees' retirement and, if self-employed, their own retirement. Under a simplified employee pension, a business owner contributes directly to traditional individual retirement account (IRA) for all employees.

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Why Get Simplified Employee Pension IRA?

A simplified employee pension IRA does not have the start-up and operating costs of a conventional retirement plan and allows for a contribution of up to 25% of each employee's pay. Contributions to a SEP IRA are tax deductible and business owner pays no taxes on the earnings on the investments. The business owner is allowed a tax deduction for plan contributions, which are made to each eligible employee's SEP IRA plan on a discretionary basis.

Employees do not pay taxes on their contributions. However, distribution plus earnings are taxed.

Self-Employed Retirement Plan

If you're self-employed or own a small business, you can also acquire SEP IRA. It is the most basic of several self-employed retirement plan options for small businesses, but it still provides core benefits for both business owner, employee, and self-employed.

An employee, business owner, or self-employed eligible to participate in SEP IRA plan must establish a traditional individual retirement account to which the employer will deposit SEP IRA contributions. Some financial institutions require the traditional individual retirement account to be labeled as simplified employee pension IRA before they allow the account to receive simplified employee pension IRA contributions. Others allow contributions to be deposited to a traditional individual retirement account regardless of whether the IRA is labeled as a simplified employee pension IRA.

Retirement Plans
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