If you open a qualified retirement account by Dec. 31, you have until the day you file your taxes next year, including extensions, to make this year’s contribution.
Simple Small Business Retirement Account – The SEP IRA
Simplified Employee Pension (SEP) plans can provide a significant source of income at retirement by allowing employers to set aside money in retirement accounts for themselves and their employees. A SEP does not have the start-up and operating costs of a conventional retirement plan and allows for a contribution of up to 25 percent of each employee’s pay.
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Available to any size business
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Easily established by adopting Form 5305-SEP, a SEP prototype or an individually designed plan document
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If Form 5305-SEP is used, cannot have any other retirement plan (except another SEP)
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No filing requirement for the employer
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Only the employer contributes
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To traditional IRAs (SEP-IRAs) set up for each eligible employee
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Employee is always 100% vested in (or, has ownership of) all SEP-IRA money
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Pros and Cons:
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Easy to set up and operate
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Low administrative costs
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Flexible annual contributions – good plan if cash flow is an issue
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Employer must contribute equally for all eligible employees
Who Contributes: Employer contributions only.
Contribution Limits: Total contributions to each employee’s SEP-IRA are limited.
Filing Requirements: An employer generally has no filing requirements.
Participant Loans: Not permitted. The assets may not be used as collateral.
In-Service Withdrawals: Yes, but includible in income and subject to a 10% additional tax if under age 59 1/2.
Source: Choosing a Retirement Plan: SEP