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| Steven King, CFP, MBA, AAMS 4555 Holland Street Wheat Ridge, Colorado 80033 303-420-8804 Toll Free: 877-420-8804 fax: 303-420-8805 sking@1stallied.com |
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| iiRetirement Plans for Business: SEP Plans |
| Retirement Plans Financial Planning Investments |
Is an SEP Retirement Plan right for your business? __________________________________________________________________________ |
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| This document is an introduction only and is not intended as advice. A detailed analysis of your circumstances would be required to determine your suitability for this or any other retirement plan. Numerous technicalities have been omitted from this introduction in order to improve readability. Some of these technicalities may have consequence for your situation. See the Home Page of this website for further disclaimers. ---------------------------------------------------------------------------------------------------------------------------------------------------- Simplified Retirement (SEP) Plan: A Retirement Plan for Small Businesses The SEP plan has many advantages, which may make it attractive for a small business. 1. Discretionary contributions 2. Simplified and economical reporting and administration 3. Employer is exempt from fiduciary requirements of ERISA 4. May be established after end of tax year In a SEP, each plan participant establishes an IRA account, to which the employer and employee can both contribute. Each participant has full control over his/her IRA account. Tax advantages For employer: Contributions are current expense items For employee: Employer and employee contributions and all gains are currently excludable. Eligibility Any business, whether incorporated or unincorporated, is eligible. This includes sole proprietors, partnerships, and corporations. The following employers are NOT eligible for an SEP. 1. Any business that currently maintain any other type of qualified retirement plan. 2. Any business that has previously terminated a defined benefit retirement plan. 3. Any business with eligible employees who are not participating 4. Any business that uses leased employees. Eligible employees include: 1. Age 21 or older 2. Employed at least 3 of the previous 5 years 3. Has total compensation for the year of at least $450 Employer MAY INCLUDE employees who do not meet these requirements. Employer MAY EXCLUDE non-resident aliens, or workers covered by a collective bargaining agreement. Contributions Contributions are allocated to each participant based on ratio of their compensation to the total compensation for all participants. There is no minimum annual contribution. This gives the business owner the flexibility to forgo contributions as circumstances dictate. Contributions can be up to 25% of compensation up to $200,000, with a maximum of $40,000. “Top-heavy” limitations Restrictions apply which limit contributions to key employees. A key employee is: 1. An officer with compensation greater than $130,000. 2. A 5% owner 4. A 1% owner with compensation greater than $150,000 If balances for key employees exceed 60% of total plan balances, addition contributions for non-key employees are mandated. Employee Contributions An employee may contribute to his or her SEP-IRA account. These contributions are subject to numerous limitations. For more information, contact Cloverleaf Financial Group. Deductibility All annual contributions are deductible for income tax purposes. Interest or gains earned within the plan are excluded from taxable income. Loans Loans are not permitted from an SEP Distributions Withdrawals from a SEP are subject to the same limitations, taxation, penalties and exceptions as an IRA. |