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The benefits of establishing a SEP

The Simplified Employee Pension, or SEP, offers an easy retirement plan option for employers. Unlike other retirement plans, which require setting up a separate plan, in a SEP you can make contributions to your own Individual Retirement Account (IRA) and to the IRAs of your employees. These contributions are subject to some percentages of pay and dollar limits. Factors such as firm size, age, revenue, retirement, the compensation needs of the employer and workforce determine whether a SEP is suitable for a business.

Setting up a SEP provides many advantages to an employer. Through a SEP, a significant source of income can be provided at the time of retirement. Contributions that are made to a SEP are tax deductible, so your business does not have to pay tax on the earning of a SEP investment. Once money is put into a SEP, an employer holds no further responsibility for the contributed amounts; from then on, the funds are handled by a financial institution.

A SEP offers several benefits for employees, too. Employees do not have to pay taxes on the amount in their SEP accounts. Taxes are applicable only when they start to withdraw the funds. In case of the death of the employee, the assets in a SEP will be transferred to someone chosen by the employee. Contributions to the SEP may continue until the employees retire. However, it is required that they start withdrawing funds when they reach the age of 70.

An attorney may be hired for professional advice on the matter. A professional advisor may be able to tell you whether SEPs are appropriate for your business.

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