Sep Retirement Plans

Written by Jacey Harmon
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SEP retirement plans, also known as Simplified Employee Pensions, allow you to save for your retirement and your employees' retirement. SEP plans allow employers to offer a retirement plan without getting involved with a complex qualified plan. SEP retirement plans can be utilized by any business or independent contractor.

What Do SEP Retirement Plans Involve?

Starting SEP retirement plans involves three basic steps. First you must execute a written agreement to provide benefits for all eligible employees. You must provide information to all eligible employees regarding SEP retirement plans. Finally, each eligible employee must be given their own separate account that is wholly owned by the employee. An experienced financial advisor can help you with carrying out these three simple steps.

Contributions into SEP retirement plans are made fully by the employer. An employer can determine what amount of annual compensation will be contributed to SEP retirement plan. However, the employer and each employee must receive the same fixed percentage of income. Contributions can range between 0 to 25 percent of annual compensation and can vary from year to year at the employer's discretion. SEP retirement plans have annual contribution limits of $41,000. Contributions into SEP retirement plans are considered a tax deductible expense.

All eligible employees must be given their own SEP account. Employees that are 21 years of age, have three years of service out of the last five and have earned at least $450 compensation in a year are considered eligible employees. Eligible employees are immediately vested into the plan, meaning that the employee owns their own account.


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