A simplified employee pension is a retirement plan made for
business owners and self-employed individuals. The employer only is allowed to
make the contributions in this plan to all eligible employees. It is the most
preferred plan for many business owners because setting up this plan is totally
free and the contribution limits are higher than others. The rules for this
investment plan are same as the traditional IRA since it is one of the types of
it.
Eligibility
The eligibility rules for this SEP plan are very simple. The
requirements are, the contributor must be above the age level of 21, must
worked for at least 3 years for the employee and received not lesser than 600
dollars of compensation. Any employee satisfies the above three conditions can
instantly set up an account with the help of trustee or custodian.
Contributions
The employer is allowed to make contributions to all
eligible employees but the trustee decide the contribution amount for each
eligible employee. The maximum contribution can be made for an eligible
employee cannot exceed 25% of compensation or 56,000 dollars in the year 2019.
Previously in the year 2018, it was 55,000 dollars. This plan has an advantage
that the employers can skip contribution for all employees in a particular year
if the business was down. But, they cannot skip contribution for some
employees. If a contribution is made to an employee, the same contribution
amount must be made to all other employees including who left the job, died in
that year or has more than 701/2 age.
How to Receive Contributions?
If an eligible employee participated in their employer’s SEP
plan, first they establish a traditional IRA account. Because to deposit the
contribution amount in a SEP plan requires a traditional IRA account. You can
easily set up a traditional IRA account with the help of trustee or local
custodians. Some financial companies requires that the traditional IRA account
must be labelled as SEP IRA in order to receive the contributions. Others will
directly deposit the SEP contributions in the traditional IRA whether it is
labelled as SEP IRA or not.
Withdrawal
The SEP contributions can be withdrawal anytime as per the
traditional IRA rules. The basic taxes are applicable for all withdrawals. If
you made a withdrawal before the age 591/2, a 10% additional taxes are
applied with the basic taxes.
