Simplified Employee Pension

What Small Businesses Need To Know

Simplified Employee Pensions, known as SEPs, represent an easy, low-cost retirement plan option for employers. Instead of establishing a separate retirement plan, in a SEP the employer makes contributions to his or her own Individual Retirement Account (IRA) and the IRAs of his or her employees, subject to certain percentages of pay and dollar limits. Employers who establish SEPs can:

• Make tax deductible contributions to their own and their employees' IRAs.
• Omit or reduce contributions in years when contributions are unaffordable.

Avoid the administrative costs and the reporting requirements of conventional plans.

Whether a SEP is appropriate for your business will depend on factors such as revenue, firm size and the age, compensation and retirement needs of the business owner and work force. You may want to discuss other retirement plan options with a professional advisor.

What Are SEP-IRAs

SEPs are retirement programs established by you, as an employer, which allow you to provide retirement benefits for yourself and your employees without paying the start-up and operating costs of conventional plans.

SEPs allow an employer to establish and make contributions to IRAs. The two critical differences between SEP-IRAs and other IRAs are that:

• SEP contributions are generally made by employers, not employees.
• The amounts contributed to SEPs can be much larger than the amounts contributed to IRAs.

As a general rule, up to 25 % of each employee's pay (or 20% for the self-employed) can be put into a SEP-IRA each year.

To set up your SEP, first consult your professional tax advisor then visit TrustBank to establish your plan.

To learn more about SEP's click here.