Monday, March 07, 2011

Simplified Employee Pension (SEP) Plan

Advantages of a SEP plan

  • Easy to set up. 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.
  • Tax advantages. SEP contributions are tax deductible to the employer, and all earnings are tax-deferred for the employee.
  • Minimal administrative costs. Employers sponsoring SEP plans are not required to file annual plan returns like those sponsoring qualified pension or profit sharing plans.
  • Contribution flexibility. An employer can make a discretionary contribution each year of up to 25% of each eligible employee’s compensation.
  • Tax planning flexibility. The employer can establish a SEP plan up until the tax filing deadline (including extensions), unlike qualified pension or profit sharing plans which must be in place no later than the last day of the plan year.
  • Investment flexibility. Since the employees can choose where the accounts are established, they may have a wide range of investments from which to choose.
  • Limited liability. The employer’s fiduciary duty is reduced because participants in a SEP choose their own investments after establishing their SEP IRA accounts.

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