Simplified employee pension (SEP) plans
A SEP plan is an employer-sponsored, tax-favored retirement plan that offers small businesses an attractive alternative to standard profit sharing plans.
In a simplified employee pension (SEP) plan, an employer deposits contributions into the IRA accounts of each participant rather than into an employer trust account, thereby simplifying the accounting process. And, unlike a traditional qualified plan, a SEP doesn’t involve an extensive written plan document and has minimal compliance reporting and disclosure requirements.
Advantages of establishing a SEP plan
A SEP plan is like a “corporate IRA” established by an employer for the benefit of each employee. There are no requirements for a separate employer trust account, because each employee establishes his or her own SEP IRA.
SEP contributions are tax deductible to the employer, and all earnings are tax deferred for employees.
Minimal administrative costs
Employers sponsoring SEP plans are not required to file annual plan returns, unlike employers sponsoring qualified pension or profit sharing plans.
Employers can make annual discretionary contributions of up to 25% of each eligible employee’s compensation.
Unlike qualified pension or profit sharing plans, SEP plans can be established until tax-filing deadlines, including extensions.
Because employees can choose where their accounts are established, they may have a wide range of investments from which to choose.
Employers’ fiduciary duties are reduced because participants choose their own investments after establishing their SEP IRA accounts.
Taking the next step
Your Raymond James financial advisor can help you determine if a SEP plan is appropriate for your business.