Simplified Employee Pension (SEP) IRA
A Simplified Employee Pension (SEP) IRA is an easy-to-setup and easy-to-administer retirement plan.
There’s minimal paperwork and no annual reports to the IRS. There
are generous funding limits, and contributions are fully tax-deductible.
Because of the plan’s simplicity, affordability and flexibility
(contributions can be stopped or started at any time) the SEP
is great for small businesses, professionals and self-employed
people. Of course,
certain rules do apply:
- Employees cannot contribute personally. Only
employer contributions are permitted. If employee participation is important,
consider the SIMPLE-IRA instead of the SEP-IRA.
- SEP plans cannot discriminate. Employees must receive equal percentage contributions.
- A SEP plan must cover anyone:
- who is 21 years old;
- who has worked for the employer for three of the past five years;
And
- who has earned at least $450 for the year. (A plan may be less
restrictive. It cannot be more restrictive. All contributions
are immediately and 100 percent vested.)
- Contributions in 2006 may not exceed 25 percent of compensation or $44,000,
whichever is less. Self-employed individuals may not contribute
more than 20 percent of compensation or
$44,000, whichever is less.
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