A SEP does not have the start-up and operating costs of a conventional retirement plan and allows for a contribution of up to 25 percent of each employee's pay.
Jed works for the Rambling RV Company. In good years, Rambling RV can make larger contributions for its employees and in down times it can reduce the amount. Rambling RV's contribution rate whether large or small must be uniform for all employees. Jed, an employee, cannot contribute because SEPs only permit employer contributions.
The first action you'll need to take is to choose a financial institution to serve as trustee of the SEP-IRAs that will hold each employee's retirement plan assets. These accounts will receive the contributions you make to the plan. The written agreement must include the name of the employer, the requirements for employee participation, the signature of a responsible official and a definite allocation formula.
Do not file this form with the IRS. If you can't use the Form SEP, you may use a prototype document. A mutual fund, insurance company, bank or other qualified institution usually provides these. You may also have a SEP individually designed for your business.
If you use Form SEP, you must give your employees a copy of the form and its instructions. The model SEP is not considered adopted until each employee is provided with the following information:.
If you use a prototype or individually designed plan you must give all eligible employees similar information. They may be set up with banks, insurance companies or other qualified financial institutions. You and your employees will receive a statement from the financial institutions investing your SEP contributions both at the time you make the first SEP contributions and at least once a year after that.
Each institution must provide a plain-language explanation of any fees and commissions it imposes on SEP assets withdrawn before the expiration of a specified period of time.
You can set up a SEP for a year as late as the due date including extensions of your business income tax return for the year you want to establish the plan. An eligible employee is an individual including a self-employed individual who meets all the following requirements:.
An employer can use less restrictive participation requirements than those listed, but not more restrictive ones. The eligibility requirements under the SEP are: an employee must perform service in at least three of the immediately preceding five years, reach age 21 and earn the minimum amount of compensation during the current year.
Bob worked for Employer X during his summer breaks from school in , and , but never more than 34 days in any year. In July , Bob turned Bob is an eligible employee in because he has met the minimum age requirement, has worked for Employer X in three of the five preceding years and has met the minimum compensation requirement for Example 2 : Employer Y writes its SEP plan to provide for immediate participation regardless of age, service or compensation.
Scott currently is senior director of financial education at BrightPlan. Scott is also a published author and an adjunct professor at Maryville University, where he teaches personal finance.
But you have to know the contribution limits and you must stay within them. You also have to meet certain deadlines. SEP plans provide business owners with a way to save for retirement for themselves and for their workers. Self-employed people and businesses of any size can set up this type of plan.
Owners can invest money for each employee. It's a fairly simple account that you can manage with just a little paperwork. There are no annual filing rules. SEP-IRAs allow you to make tax-deductible contributions and grow your earnings on a tax-deferred basis. Neither the money you put in nor its gains will be taxed until you withdraw it. SEP-IRAs also offer funding flexibility from one year to the next, which can be a real win for businesses with fluctuating fortunes. You can invest up to the SEP-IRA limits if your business is having a stellar year, or you can choose not to put in any money at all if it's a tight year.
They're subject to many of the same rules as these IRAs as a result. One of the nicest features of the SEP plan is the large amount you can put away for retirement. You have to contribute the same percentage of compensation for all of your workers if you're doing so on behalf of others. Your own compensation would be your adjusted self-employment income for the year if you're paying into your own SEP plan.
First, determine your gross income. Now subtract half your self-employment tax. This is your net adjusted income. Vanguard provides a useful calculator to help you figure out your maximum contribution to a SEP-IRA, but you might want to consult with a tax professional if you have other questions about how much you can pay in.
The tax-filing deadline for many small business owners is April 15 in most years. Asking for an extension of time to file will push the date back to October With a SEP, you can decide how much to contribute each year. Contact us with any questions you have about SEPs and to discuss whether it makes sense for you to set one up for or Phone: Client Email Client Login.
0コメント