A Simplified Employee Pension (“SEP”) is a written plan that allows you to make contributions toward your own retirement as well as your employees’ retirement while avoiding the complexity of various qualified plans. Under a SEP, you make contributions to a traditional IRA set up by or for each eligible employee.
It is important to note that SEP-IRA is owned and controlled by the employee, and you make contributions to the financial instituation where the SEP-IRA is maintained.
At a minimum, SEP-IRAs are set up for each employee that is considered to be eligible under the IRS regulations. “Excludable” employees can be excluded from coverage under a SEP.
There are three basic steps in setting up a SEP. First, you must execute a formal written agreement to provide benefits to all eligible employees. Second, you must give each eligible employee certain information about the SEP. Finally, a SEP-IRA must be set up by or for each eligible employee.
While there are special rules determining the contribution limit for self-employed individuals, generally, a contribution to a common-law employee’s SEP-IRA cannot exceed the lesser of 25% of the employee’s compensation or $49,000 (for the tax year 2011).
Contact Sherayzen Law Office to Understand SEP-IRA Option
If you have any questions with respect to SEP-IRA and how it functions, contact Sherayzen Law Office for additional legal help.