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. Trading Strategies

    You'll Lose Profits Without This Trading ...

  2. Investing

    Are You An Investor Seeking For More ...

  3. Investing

    Ready To Invest In Financial Leverage ...

  4. Trading Strategies

    How To Approach Momentum Trading Like ...

  5. Options & Futures

    How To Protect A Short Position With ...

Trading Center