A Simplified Employee Pension (SEP) is a practical retirement plan which can be used by small businesses and sole proprietors.  The plans are easier to establish than qualified plans and have practically no filing requirements.  The SEP uses an IRA account as the vehicle for the contributions; the plans do not have complicated trust accounting for the plan sponsor.

The SEP is not a qualified plan, is has unique rules that are different than qualified plans.  For example, SEP’s have more liberal participation requirements than qualified plans, have a later initial starting date and have different contribution, distribution and vesting rules.

Why a Simplified Employee Pension?  (SEP)

• Can contribute up to 25% of compensation or a maximum of $54,000 – whichever is less – No catch-up – No Elective Deferrals
• Contribution is tax deductible as a business expense for the company
• Completely flexible annual contribution amounts – Co. is not required to contribute every year
• Minimal administration – do not file any IRS documents (tell your accountant about the amount of your contribution)
• Do not have to employ an actuary
• Follows the IRA rules for loans, distributions, penalties…(no loans)

Steps for Business to establish a SEP

• Company sets up a master account at Schwab ( no extra legal documents for the company – Schwab provides the  documentation)
• Employer informs Employee’s that SEP has been initiated
• Employees receive information – disclose that the return is not predictable
• User friendly access for employees – All is on-line with Schwab
• Schenley will meet with individuals alone to discuss risk tolerances, goals…
• Company could contribute a Dollar amount or a % of salary

Participation Restrictions if the Employer chooses to exclude:

• Sponsor must provide to all employees (including part time)
• 21 years of age
• Worked as an employee 3 of the last 5 years
• Received at least $550 during the year.

Who is excluded?

• Covered by a Union agreement if their retirement benefits were bargained for by union and their employer
• Non-Resident Aliens who have no U.S. source of earned income from employer

When to establish?

• Established and Funded the date of the Federal Tax return filing or extension

Who can establish a SEP and by what date?

          Who                                        Latest Date

          Sole Proprietorship                  4/15/16 or 10/16(Extension date)

          Partnership  or LLC                  4/15/16 or 10/16

          Corporation                             3/15/16 or 9/16

          S – Corporation                        3/15/16 or 9/16

Steps for establishing a SEP-IRA with your Employees:

• Execute a Written Agreement to provide benefits to all eligible employees
• Give employees certain information about the SEP & Agreement
• Set up a SEP-IRA for each employee
• Employees can roll the IRA into a ROTH IRA – must pay tax 1^st

written by: ||elizabeth genter, schenley president||