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A SEP Plan (Simplified Employee Pension Plan) is a retirement plan whereby an employer makes contributions on behalf of their employees. As the
employer's profit fluctuates from year to year, so can the employer's contributions to the plan. SEP Plans are ideal for self-employed people and small business owners. The SEP is intended to be an attractive alternative to tax qualified retirement plans which are subject to ERISA because a SEP plan is relatively easy and inexpensive to establish and administer. |
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The SIMPLE IRA Plan - savings incentive
match plan for employees of small employers. Any employer with 100 or
fewer employees who earned $5,000 or more during the preceding
calendar year is eligible to establish a SIMPLE IRA plan. However,
an employer that currently sponsors another retirement plan
generally cannot sponsor a SIMPLE IRA plan. A SIMPLE IRA plan gives
small businessesan affordable way to offer retirement
benefits through employee salary reductions and matching contributions
(similar to those found in a 401k plan).
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Contributions to SEP plans provide valuable tax benefits to
Employers. The employer contributes toward its
employees' retirement savings while enjoying the benefit of reduced federal income taxes. Such tax savings can in turn be viewed as helping to fund the plan. An employer is eligible to take a federal income tax deduction under IRC Section 404(h) for amounts contributed to a SEP plan. -
The only required forms for Establishment are a pre-approved IRS 5305-SEP form and an IRA application for
each participant.
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There are no initial or annual required filings.
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Employer Contributions can vary from year to year or even skipped occasionally.
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Employees are not permitted to make contributions but can decide
how to invest
employer contributions. -
The maximum dollar amount that may be contributed is
$45,000*
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Eligible employees can contribute up to $10,500* through payroll
deductions. Catch-up provisions allow employees 50 and older to make
an additional $2,500* contribution.
When employers start these plans, they have two
options for the IRAs and where the contributions are deposited:
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The employer may choose the
financial institution that will receive all contributions under the
plan. In this case, employees will have the right to transfer
contributions to a SIMPLE IRA at another financial institution
without cost or penalty.
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Each employee may make the initial
choice of financial institution to receive contributions. In this
case, an employee does not have the right to transfer to another
financial institution without cost or penalty.
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