Retirement plans for Small Business

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Looking for an easy and low-cost retirement plan? Why not consider a SEP?

Simplified Employee Pension (SEP) plans can provide a significant source of income at retirement by allowing employers to set aside money in retirement accounts for themselves and their employees. Under a SEP, an employer contributes directly to traditional individual retirement accounts (SEP-IRAs) for all employees (including themselves). A SEP does not have the start-up and operating costs of a conventional retirement plan and allows for a contribution of up to 25 percent of each employees pay.

Advantages of a SEP

  • Contributions to a SEP are tax deductible and your business pays no taxes on the earnings on the investments.
  • You are not locked into making contributions every year. In fact, you decide each year whether, and how much, to contribute to your employees SEP-IRAs.
  • Generally, you do not have to file any documents with the government.
  • Sole proprietors, partnerships, and corporations, including S corporations, can set up SEPs.
  • You may be eligible for a tax credit of up to $500 per year for each of the first 3 years for the cost of starting the plan.
  • Administrative costs are low.

As you read through this booklet, here are some definitions you will find helpful:

Employee An employee is not only someone who works for you, but also includes you if you receive compensation from the business. In other words, you can contribute to a SEP-IRA on your own behalf. The term also includes employees of certain other businesses you and/or your family own and certain leased employees.

Eligible Employee An eligible employee is an employee who:

  1. Is at least 21 years of age, and
  2. Has performed service for you in at least 3 of the last 5 years.

All eligible employees must participate in the plan, including part-time employees, seasonal employees, and employees who die or terminate employment during the year.

Your SEP may also cover the following employees, but there is no requirement to cover them:

  • Employees covered by a union contract;
  • Nonresident alien employees who did not earn income from you;
  • Employees who received less than $550 in compensation during the year (subject to cost-of-living adjustments).

Compensation The term generally includes the pay an employee received from you for a years work. As the owner/employee, your compensation is the pay you received from the company. Employers must follow the definition of compensation included in the plan document.

SEP Retirement Plans for Small Businesses. To order copies call toll-free 1-866-444-EBSA (3272).

2006-03-02 11:38:47 by bigpurple

Assuming you meet the requirements

From the IRS:
Can a person make a contribution to a SEP-IRA and a Roth IRA, too?
Yes, you can make a contribution to a SEP-IRA and a Roth IRA. See chapter 2 Publication 590, Individual Retirement Arrangements (IRAs), for the requirements to contribute to a SEP and a Roth IRA. However, your SEP IRA contribution and Roth IRA contribution can not be made to the same IRA.
References:
* Publication 590, Individual Retirement Arrangements (IRAs)
* Publication 560, Retirement Plans for Small Business
* Tax Topic 451, Individual Retirement Arrangements (IRAs)

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