SEP or Simplified Employee Pension plans are designed for small businesses. They are less complex and require less administrative work. This type of plan is commonly used by self employed individuals with few or no employees. Contributions to traditional IRAs and Roth IRAs may be allowed as well.
The following table describes the principal characteristics of a SEP retirement plan:| # | Characteristics of a SEP Retirement Plan |
|---|---|
| 1. | All contributions are tax deductible for the employer who can contribute up to $49,000 (for 2011) or 25% of eligible employees’ compensation, whichever amount is smaller. |
| 2. | Penalty free withdrawals may start at age 59 ½, with appropriate payment of income taxes. Withdrawals may also be made in the event of disability, death (designated beneficiaries get the distribution), health insurance permiums due (certain unemployed individuals), qualified higher-education expenses, qualified first home purchase ($10,000 lifetime limit), certain medical expenses (over 7.5% of your Adjusted Gross Income). |
| 3. | Yearly mandatory minimum distribtions must start once the age of 70½ is reached. Distributions must be made by April 1st of the following year and must be paid out by December 31st. |
| 4. | The plan must be put in place by the employer’s deadline for filing taxes, including extensions. Contributions are due by the employer’s deadline for filing taxes, with extensions included. |
| “C” Corporations | Sole Proprietors | Partnerships |
| “S” Corporations | Small-Business Owners | Self-Employed individuals |
| Independent Contractors |
Retirement & Education Accounts