SEP IRA Retirement Plan – Save Now, Play Later
Having a SEP IRA retirement account offers a safety-net for the employees of smaller businesses that may not have the resources to offer their workers with a more standard plan. Called the SEP, the Simplified Employee Pension is true to its name, being simple to establish and administer , withreduced costs for both set up and administration, and streamlined documentation and record keeping. In the small firm plan, qualified employees will be at least 21 years of age , have worked for the company for at least three of the prior five years, and been compensated for their work with a minimum of $550. The contribution cap of the plan is an exceptional feature. The employer funds contributions to the employee accounts through a pre-tax salary reduction of up to 25% of the employee’s annual compensation, or $49,000, whichever is lower. The employer has the option to change the contribution percentage or even suspend it, but all contribution percentages must be uniform and contributed foreach qualified employee in the SEP IRA retirement plan. Essentially, the SEP is a group of traditional IRAs managed for the employees and as such is subject tomany of the same guidelines that govern the traditional form of IRA pertaining to permitted investmentselections and distribution rules . Disbursements from the SEP can start as soon as when the account owner is 59 ½ years old, although earlier distributions will trigger a 10% penalty in addition to the standard tax responsibility . Mandatory distributions must begin no later than at age 70 ½. The account is fully vested once the contribution has been made , so the account owner may roll the money from the SEP IRA retirement account into a different IRA, or in the event of an employment change might choose to transfer the balance to the new employer’s sponsored retirement plan.Increased SEP contribution limits can accelerate savings as employees get ready for retirement.