Simplified Employee Pension SEP
What does Simplified Employee Pension SEP mean?
A Simplified Employee Pension plan or SEP is a retirement vehicle which can be used by a business of any size, including those who are self-employed, and allows the employee and employer to contribute to the employee’s retirement through a SEP IRA.
The SEP IRA also allows the worker to perform other actions similar to those performed with a traditional IRA including distributions, rollovers, and investment. Simplified Employee Pension (SEP) Investing Employees who have an established SEP IRA may have options for where to invest their funds. For instance, some SEP accounts are invested in preferred stocks, while others are invested in corporate bonds, government securities, open and closed-end mutual funds, variable annuities, CDs and REITs.
Wide investment choices are just one benefit of the SEP.
SEP IRAs also allow the worker more flexibility and diversification options so the worker can meet their own financial objectives, needs, and goals. As with many other retirement funds, there are withdrawal rules. For instance, you cannot make withdrawals from your SEP IRA prior to age 59.5 without being penalized. SEP and Participation eligibility Like other retirement options, the SEP plan is funded by the employer. Workers, however, will have contribution limits. For instance, the contribution made by employees to their SEP account cannot exceed the lesser of 25% of the worker’s compensation or $52,000 for 2014. The amount will be raised to $53,000 for 2015 and will be subject to annual cost of living adjustments for all of the following years.
There are also limitations on the maximum amount workers may contribute to all defined contribution plans, which includes SEPs. Employers also have specific contribution requirements they must meet, and all eligibility rules must be applied on a consistent basis to all employees, including owner-employees. Taxes and SEP IRA A SEP IRA will allow the investor to defer taxes. Investors will get an immediate tax deduction but will have to pay taxes when they retire and withdraw the funds. When the funds are withdrawn the investor will be required to pay their income tax on the original contribution and the ordinary income tax on the gain.
Before making any investment decisions it is generally a good idea to consult with a financial investor or tax consultant.
Previous EntrySexual harassment