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Qualified Plans -
Simplified Employee Pension (SEP) |
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Simplified Employee Pension (SEP)
A SEP is an easy-to-setup and easy-to-administer retirement plan. There's minimal paperwork and no annual reports to the IRS. There are generous funding limits and contributions are tax deductible.
Because of the plan's simplicity, affordability and flexibility (contributions can be stopped or started at any time), the SEP is great for small businesses, professionals and self-employed people. Of course, certain rules do apply:
- Employees cannot contribute personally. Only employer contributions are permitted. If employee participation is important, consider the SIMPLE-IRA instead of the SEP-IRA.
- SEP plans cannot discriminate. Employees must receive equal percentage contributions.
- A SEP plan must cover anyone: (1) who is 21 years old, (2) who has worked for the employer for three of the past five years, and (3) who has earned at least $450 for the year. (A plan may be less restrictive. It cannot be more restrictive. All contributions are immediately and 100% vested).
- Contributions may not exceed the lesser of 25% of compensation or $42,000 (self-employed 20%; $42,000). For 2005, the maximum amount of compensation considered in the caluculation is $210,000.
Features will vary by company and product. Please refer to
Glossary for definitions
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