A Simplified Employee Pension (SEP) IRA 

A SEP is a pension plan that is available to all taxable businesses, but appeals to owners of small companies, government entities and tax-exempt organizations in which the employer contributes to an Individual Retirement Account (IRA) on behalf of the employee.  No contribution is made by the employee.

 Who Must Be Covered

Any employee who has worked three of the pat five years and is 21 years of age or older must be covered.  Employees whose annual compensation is less the $450 can be excluded.

The Benefits

A SEP offers many of the tax benefits of the qualified plans, but it has fewer of the administrative expenses associated with them. SEP contributions are discretionary and can be up to 25% of pay for each eligible employee. Except for grandfathered SARSEPs, employee pretax contributions are not allowed.  All contributions are made to IRAs for the benefit of the eligible employees and are 100% immediately vested. Contributions and earnings grow tax-deferred until the money is withdrawn by the employee.

Advantages

Some advantages of a SEP are flexibility with contribution amounts due to the increase in deferral limits, no requirement to make ongoing contributions, minimal paperwork and expense, minimal tax filing.

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