Simplified
Employee Pension (SEP)
Simplified Employee Pension (SEP) accounts are a pension
plan established by a business where the employer deposits
contributions into an account for the employees of the
company and is tax deductible by the employer. They
provide maximum flexibility for contributions allowing
you to set aside a different percentage each year. It
is typically preferred by self-employed individuals
or business owners with only a few employees.
Any employer including a sole proprietor with no employees
can establish a SEP for their own benefit. The employer
elects to pay all employees involved the same percent
or the same dollar amount across the board. Contributions
to a SEP for yourself and your employees are tax-deductible
as a business expense.
This site is provided for your information
and does not constitute tax advice. Please consult with
your accountant or tax advisor for specific guidance.
Withdrawals from an IRA made prior to age 59½
may be subject to a 10% IRS penalty in addition to ordinary
income taxes.
SEP Benefits as an Employer:
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A SEP can provide a significant
source of income at retirement.
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Contributions to a SEP
are tax deductible and your business pays
no taxes on the earnings on a SEP's investments.
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You are not locked into
making contributions in future years. You
can decide each year whether to pay into the
SEP and how much to contribute.
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Once you put money into
a SEP you have no further responsibility for
the amounts contributed. The funds are managed
by a financial institution.
-
A SEP can be established
and operated without the administrative expenses,
consulting fees or commissions usually associated
with maintaining a conventional retirement
plan.
-
You ordinarily do not
have to file any documents with the government.
SEPs can be set up by sole proprietors, partnerships
and corporations, including S-corporations.
-
You can deduct contributions
to a SEP for a previous tax year if you make
contributions by the due date of the employer's
tax return, including any extensions
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SEP Benefits for Employees:
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The money you contribute
to your employees' SEP accounts, as well as
the investment earnings, belongs to them,
even if they stop working for you.
-
Employers' contributions
to the SEP-IRA are not included in employees'
income for income tax purposes.
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Employees pay no taxes
on the amounts in their SEP accounts until
they start withdrawing the funds.
-
Employees can change the
financial institution where their SEP is invested.
In case of an employee's death, the assets
in a SEP will go to someone the employee has
chosen.
-
SEP contributions can continue
until employees retire, but they must start
withdrawing assets from a SEP when they reach
age 70½.
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Want to determine how much money you will need to retire.
Use one of our calculators.
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