Understanding the Simplified Employee Pension Plan
A SEP, or simplified employee pension plan is a great way for business owners to contribute toward their employees’ retirement funds along with their personal accounts. Any employer (including self-employed individuals) can establish a self-directed SEP plan, and opening or transferring such a plan with American IRA is a streamlined path to intelligent and flexible investing.
According to the IRS, setting up a SEP account consists of 3 required steps:
1) Adopting a formal written agreement by signing either a SEP IRA Contribution Agreement, an IRS-approved prototype SEP, or an individually designed SEP plan document
2) Providing each eligible employee with information about the SEP
3) Setting up a SEP-IRA for each eligible employee with a qualified financial institution. The employee will then own and control the SEP IRA.
One benefit of a simplified employee pension plan is its low costs because they don’t have the operating and startup costs that most conventional employer plans do. There are several other benefits too; for example, contributions are tax deductible and you don’t have to contribute identical amounts every year. The self-direction component of an American IRA administered plan also expands your investment selection.
To determine whether a simplified employee pension plan is right for you and your company, you’ll want to consider a few fundamental aspects. If you want to be able to choose whether or not you make contributions every year, realize low start-up costs, or if you’re a sole proprietor, independent contractor, self-employed, a partner, or a corporation, such an account is worth your consideration.
Employees must be included in a SEP plan if they’re at least 21, if they’ve worked for your business 3 out of the last 5 years, or if they’ve been given at least $550 worth of compensation from your business for the year. To elaborate on one of those stipulations, the “3-of-5” rule states that you can require employees to have served your company for 3 of the last 5 years in order to participate, but you can have less restrictive participation rules as well.
As a leading self-directed IRA account administrator, American IRA also services simplified employee pension plans. Click here for more information on SEP plans or call 1-866-7500-IRA(472)
If you have any questions about opening a new account, contact us at 1-866-7500-IRA(472) or [email protected]. If you’d like to transfer your existing portfolio, contact us at 1-866-7500-IRA(472) or [email protected].