SEPs: The Easiest Retirement Plans to Set Up and Administer

        Despite the numerous advantages of qualified retirement plans, small business owners like yourself may not want to commit to the time and expense of setting up and maintaining one. If you feel that way, you may find a Simplified Employee Pension, or SEP, to your liking.

        A SEP can be a relatively easy, low-cost way to provide retirement benefits. It's essentially a form of IRA arrangement--you, as employer, would make contributions to your own IRA and the IRAs of your employees. However the amount that can be contributed and deducted to each account is much higher than the amount that can be put into a regular IRA.

        Start-up costs for a SEP generally are low because you don't have to create a plan from scratch. Reporting requirements also are minimal. Other advantages: participants choose their own investments, and you, as the plan sponsor, don't have to commit to making contributions every year. If you don't feel you can make a contribution in any particular year, you don't have to.

        If you do decide to make a contribution for a year, you must make one for all qualifying employees, based on a written allocation that does not discriminate in your favor or in favor of your family members or highly compensated employees. Generally, you must contribute the same percentage of compensation for other employees as you do for yourself. If you set up a SEP, it must cover all employees who earn more than a few hundred dollars a year, are at least 21 years old, and have worked for you during at least three of the past five years.

        A possibly negative SEP feature is that participants are fully vested in their contributions as soon as you make them. Some employers view this as a disadvantage. Gradual vesting, that is available with regular qualified retirement plans, may give employees more incentive to remain with the employer.

        A final note: If you do decide on a SEP, you might even be able to set one up and get some deductions for a tax year that is already past. The deadline is the income tax return due date for the year, plus filing extensions.

        If you would like to explore either the basic SEP or a salary reduction SEP more fully, please do not hesitate to call.

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