Simplified Employee Pension Plans For Small BusinessesSimplified Employee Pension Plans For Small Businesses https://learningcenter.statefarm.com/finances-1/mutual-funds/simplified-employee-pension-plans-for-small-businesses/ bb3 Sep 12, 2014
By Staff writer State Farm™ Employee
The Simplified Employee Pension Plan, or SEP IRA, is a small-business retirement plan thatís easy to set up. Eligible employees establish SEP IRAs, to which tax-deductible contributions are made only by the employer. The contribution percentage can vary each year, from 0 Ė 25% of compensation. The same percentage of compensation must be contributed for all eligible participants, including the owner-employee.
A SEP plan must be available to all employees who are at least 21 years old and who have performed services for the employer for three of the preceding five years. Employers have the option to offer the plan to more people; for example, all employees with at least one year of service.
The employer can deduct all of the contributions made to the plan, and it is not considered to be taxable income to the employees (although employees will owe taxes when they take withdrawals from their accounts). Any investment earnings are tax-deferred until withdrawal, too.
The SEP plan is easy to operate. Itís a tax-deductible way for small-business owners to attract and retain employees while also saving for their own retirement; after all, the owner is generally an eligible participant.