Simplified Employee Pension Plans in the Small Businesses

By: Jeff McLeod
Submitted: 2007-01-17 16:17:29
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Do you work for a small business or for yourself and want to know if you will be safe and secure when you retire? Small businesses or self-employed individuals can provide benefits so you or the individual can have peace of mind. They can set up Simplified Employee Pension (SEP) plans. A SEP plan allows an employer to make contributions toward an employees' retirement, and if self-employed, his or her own retirement.

The SEP rules permit an employer to contribute and deduct each year to each participating employee's SEP-IRA up to 15% of the employee's compensation or $30,000, whichever is less. Bonuses and overtime are included in the employee's compensation. Simplified Employee Pension Plans are funded by employer contributions only. A self-employed owner's contribution is based on net profit minus one-half- self-employment tax minus the contribution for him or herself. To determine the contribution and deduction amount you must see IRS Publication 560 which is used for Retirement Plans for Small Businesses.

What makes an employee eligible for a SEP? The employee must have worked for the employer for at least three of the last five years, they must be at least 21 years of age, and has received from the employer at least $400 in compensation in the tax year. An employer can establish less restrictive participation requirements for its employees than those listed, but not more restrictive ones. The eligibility rules must be applied on a persistent basis to all employees including self-employed individuals.

Simplified Employee Pensions is one way that small businesses can provide retirement for their employees. There are several ways that one can plan for the future. Any employer can establish a SEP. The investments are managed by the each individual employee. Simplified Employee Pension plans are very easy to set up and will make you feel better knowing that you have something to look forward to when you decide to retire.

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