CFP

By Investopedia AAA

Types of Retirement Plans - Simplified Employee Pension (SEP)

A SEP is a written plan that allows self-employed individuals to make retirement contributions on their own behalf and on behalf of their employees without the complexity of a qualified plan.

  1. SEP-IRA - Under a SEP, the self-employed individual makes contributions to a traditional IRA set up by or for each eligible employee. The SEP-IRA is owned and controlled by the employee.
  2. Eligible employee - An employee who meets all of the following requirements:
    • Age 21 or older.
    • Employed for at least three of the last five years.
    • Received at least $550 in compensation (2014, adjusted for inflation).
    • Employees covered by a union agreement may be excluded who retirement benefits were bargained for in good faith.
  3. Contribution limits - The lesser of:
    • 25% of the employee's compensation, or
    • $52,000 (2014, indexed for inflation).
    • Compensation for self-employed individual is based on net earnings, which takes into account the deduction for one half of self-employment tax and the deduction for contributions to a SEP-IRA.
  4. Deducting contributions - Contributions to a SEP are deductible up to the above contribution limits.
  5. Contribution deadline - Due date of employer's income tax return (including extensions).
  6. Deadline for setting up a plan - Due date of employer's income tax return (including extensions).
SIMPLE plans

You May Also Like

Related Articles
  1. Several things factor into the salary of a financial advisor. Here's a look.
    Investing Basics

    How Much Does A Financial Advisor Earn?

  2. With a long list of risks, losses associated with foreign exchange trading may be greater than initially expected. Here are the top 5 forex risks to avoid.
    Economics

    Top 5 Forex Risks Traders Should Consider

  3. ISAs are financial instruments that allow students to raise funds to pay for their degrees by selling shares in their future earnings.
    Investing Basics

    Funding Higher Education With An ISA

  4. Top Ways to protect your purchases from credit card hackers or security breaches.
    Credit & Loans

    7 Ways To Protect Against Credit Card ...

  5. The Internal Revenue Service's new 2015 contribution limits for tax-deferred savings plans are higher; here's what you and your clients should know.
    Investing Basics

    New 2015 Contribution Limits: Advisors ...

Trading Center