Lecture Employee benefits and retirement planning - Chapter 24: Simplified employee pension (SEP)

This chapter discusses the Simplified Employee Pension (SEP). Advantages and disadvantages are discussed following a section on when an employer might want to use a SEP. Tax implications are covered next, followed by a chart comparing small business retirement plans. | What is it? A Simplified Employee Pension (SEP) is an employer-sponsored plan under which contributions are made to the participating employee’s IRA Contributions can be made at much higher levels than under a traditional IRA Copyright 2009, The National Underwriter Company When is it indicated? When the employer wants a simpler, less costly alternative to a qualified plan When it is too late to adopt a qualified plan (qualified plans must be adopted before the end of the plan year; a SEP can be adopted as late as the tax return filing date for the year) Copyright 2009, The National Underwriter Company Advantages A SEP adoption is easy and inexpensive Benefits are portable since funding consists of IRAs SEPs provide a great deal of funding flexibility for employers Participants benefit from positive investment results (but risk of poor results) A SAR-SEP IRA (adopted before 1997) can permit salary reduction contributions by employees Copyright 2009, The National Underwriter Company Advantages (cont) A SEP can be adopted at any time up to the tax return filing date for the year for which it is adopted, including extensions. If an incorporated employer uses the calendar year, the tax return filing deadline for the year 2009 is March 15, 2010, with extensions possible to September 15, 2010. Therefore, the SEP could be adopted for 2009 as late as September 15, 2010. Copyright 2009, The National Underwriter Company Disadvantages SEPs are not reliable as a stand-alone retirement plan, particularly for employees entering the plan at later ages The annual contribution may be restricted to lesser amounts than would be available in a qualified plan. Copyright 2009, The National Underwriter Company Tax Implications The employer deduction for contributions to the plan is 25% of total payroll, provided contributions are made under a written formula and satisfies specified requirements The plan must cover all employees who are at least 21 years of age and . | What is it? A Simplified Employee Pension (SEP) is an employer-sponsored plan under which contributions are made to the participating employee’s IRA Contributions can be made at much higher levels than under a traditional IRA Copyright 2009, The National Underwriter Company When is it indicated? When the employer wants a simpler, less costly alternative to a qualified plan When it is too late to adopt a qualified plan (qualified plans must be adopted before the end of the plan year; a SEP can be adopted as late as the tax return filing date for the year) Copyright 2009, The National Underwriter Company Advantages A SEP adoption is easy and inexpensive Benefits are portable since funding consists of IRAs SEPs provide a great deal of funding flexibility for employers Participants benefit from positive investment results (but risk of poor results) A SAR-SEP IRA (adopted before 1997) can permit salary reduction contributions by employees Copyright 2009, The National .

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