Should You Establish an SEP?

Have you heard of simplified employee pensions, or SEPs? Especially if you are a small business owner, you may have heard the term tossed around a few times. The SEP is an easy and cost-effective retirement benefit plan for employers. Plus, it’s an excellent option for sole proprietors and independent contractors. With this plan, the employers are responsible for making contributions and setting up the plan. Learn more below.

What Is an SEP?

An SEP is a retirement program that you, the employer, establish to provide retirement benefits for your staff and yourself. Here’s the best part: you don’t have to pay any of the initial fees or operating expenses typically associated with traditional retirement plans. Employers are responsible for making contributions in this plan, and the contribution is much higher than what an IRA allows. Generally, you can put up to 15 percent of the employee’s paycheck into his r her SEP account. The contributions are tax deductible and can be reduced or omitted in years when they are not manageable.

The Benefits for You

Are there benefits for you as an employer? Of course there are! Take a look at the list:

Well-managed SEPs provide a significant financial cushion for a stress-free retirement.
Your enterprise is not legally obligated to pay taxes on your SEP investments.
SEP contributions are tax deductible.
You are not bound to your contribution level now and forever. If you ever want to increase or decrease the amount you put in, you are free to do so.
Once you’ve deposited money into the account, the responsibility for the funds transfers to the financial institution.
You can circumvent typical retirement plan fees like commissions, administrative costs and consulting expenses.
Generally, you are not obligated to file documents with the government.
Sole proprietors, partnerships and corporations qualify for SEPs.

The Benefits for Your Employees

You can’t commit to a retirement option if it isn’t the best for your employees. After all, quality benefits help you retain that top talent. What are the advantages of an SEP for your team?

All the money in the SEP accounts, including any investment earnings, belongs solely to the employees, even after they leave your company.
Your contributions to your staff’s SEPs are not included in their taxable income.
Employees will not have to pay taxes on this account until they begin withdrawing the funds.
Employees are free to transfer their account to a different financial institution if they wish.
In the event of your employee’s passing, he or she can designate a recipient of their SEP funds.
SEP contributions can continue until retirement.
Employees are not obligated to withdraw from the fund until the age of 70.
Employees can deduct their contributions for the previous tax year if they added to the SEP account before the employer’s tax return comes due.

Who to Include in Your Plan

Generally, you’ll have to include most of your employees in your SEP plan, but there are five major exceptions to this rule. You may exclude employees:

Who haven’t worked with your enterprise for at least 3 of the last 5 years
Who earn less than $600 in payment for services in the calendar year
Who are under the age of 21 during the calendar year
Who are non-resident immigrants and don’t earn a United States income from your company
Who are covered with a collective bargaining agreement

Have you seen the light of the SEP? This is only one retirement plan option, but if you are looking for something manageable, it’s a great place to start. From corporations to independent contractors, the SEP can be the ideal option as you save for retirement and skip the pesky fees. Make the most of your retirement account and give your employees a great option with SEPs.

Legal Disclaimer

The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.