Home > Tax Articles > Choosing a Retirement Plan: SEP
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,
- 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.