Sep Plans

Written by Jacey Harmon
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SEP plans, or SEP IRAs, are retirement funding vehicles for any type of business. SEP plans are qualified retirement plans with tax incentives for using the plan. Contributions into SEP plans are tax deductible and earnings grow tax deferred while in the account.

SEP plans have differences from traditional IRAs and Roth IRAs. SEP plans allow for greater contribution limits than other IRA plans. Traditional or Roth IRAs have contribution limits of $3,000 annually while SEP plans have a limit of $40,000 or 25 percent of net income annually. Larger contribution limits give SEP plans an edge over other IRA accounts.

SEP plans that are utilized by companies with employees must adhere by certain regulations when implementing SEP plans. All eligible employees must be included into SEP plans once they are adopted. Employees who are at least 21 years of age, who earned at least $450 for the year, and have at least three years of service out of the last five, are considered eligible employees. The employer makes all contributions on behalf of the employee. Each employee is given an individual account.

Contributing to SEP Plans

As noted above, SEP plans offer contribution limits as high as $40,000 or 25 percent of net income every year. Percentage amounts must remain at a common rate for each eligible employee of the business. Contributions made on both the owners, and employee's behalf are fully tax deductible. Contributions to SEP plans may vary from 0 to 25 percent of income annually at the business's discretion. SEP plans are great if your business can fully sponsor this type of plan. An experienced financial consultant will be able to help you determine if SEP plans are right for you.


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