Simplified employee pension plan

A simplified employee pension plan (SEP) is a personal retirement account that has a minimal amount of reporting associated with it. The plan is designed for a self-employed person, but can be extended to all types of business entities. A SEP IRA can only be created if there is no qualified retirement plan already in place. Contributions to a SEP IRA are protected from income taxes until such time as they are withdrawn from the account. Contributions vest as soon as they are made to the plan - there is no waiting period for vesting. Participants may begin withdrawing funds from the account as of age 59 ½. A penalty may apply if withdrawals are made from the account prior to age 59 1/2. The balance in this account can be rolled over into another retirement plan without penalty.

The total contribution to a SEP IRA cannot exceed the lesser of 25% of a participant’s annual compensation or a figure that is set by the Internal Revenue Service each year. These contribution levels make the SEP IRA one of the best ways to protect a substantial amount of funds from taxation.

Related Courses

Human Resources Education Bundle 
Human Resources Guidebook 
Payroll Management