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choosing a RETIREMENT PLAN: sep

Under a SEP, you, the employer, make contributions to traditional IRAs (SEP-IRAs) set up for each of your eligible employees. A SEP is funded solely by employer contributions. Each employee is always 100% vested in (or, has ownership of) all money in his or her SEP-IRA.


To Establish a SEP, You:

- Can be a business of any size.
- Adopt IRS Form 5305-SEP, a SEP prototype or an individually designed plan document.
- Cannot have any other retirement plan (except another SEP) if the model Form 5305-SEP is used to establish the SEP.


Pros and Cons:

- Easy to set up and operate - usually just a phone call to a financial institution gets things started.
- Administrative costs are low.
- Plan can have flexible annual contribution obligations - a good plan if cash flow is an issue.

Who Contributes: Employer contributions only.

Contribution Limits: Total contributions to each employee's SEP-IRA cannot exceed the lesser of $49,000 for 2009 and 2010 (subject to cost-of-living adjustments for later years) or 25% of pay.

Filing Requirements: An employer generally has no filing requirements.  The annual reporting required for qualified plans (Form 5500 series) is normally not required for SEPs.  The financial institution that holds the plan's SEP-IRAs handles most of the other paperwork.

Participant Loans: Not permitted.

In-Service Withdrawals: Permitted, but includible in income and subject to a 10% additional tax if under age 59 1/2.

Additional Resource: The IRS Retirement Plans Navigator - a retirement plan Web guide for small employers.
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