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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.

SEP Benefits as an Employer:

  • A SEP can provide a significant source of income at retirement.
  • Contributions to a SEP are tax deductible and your business pays no taxes on the earnings on a SEP’s investments.
  • 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.
  • 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

SEP Benefits for Employees:

  • 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.
  • 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.
  • Choose from variety of non-FDIC insured investments through First South Bank Wealth Management, including stocks, bonds, mutual funds, and other investments, to make the most of your contributions.*
  • Also choose from bank products such as FDIC-insured CDs and money market accounts.
  • Receive professional guidance from a First South Bank Wealth Management Consultant.

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.

For more information on Personal Finance Options, contact us at 1-800-946-4178.

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*Securities offered by First South Wealth Management are not deposits, not FDIC insured, not guaranteed by the bank and may lose value.


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