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Simplified Employee Pension (SEP) IRAs are an IRA-based employer plan, so a business owner who decides to adopt a SEP for his or her business will be solely responsible for funding the plan.
Let's recap:
- Generally, any employee who is at least 21, earns at least $500 per year, and has worked three out of the five preceding years is eligible to participate in the SEP.
- Any employer with one or more employees may establish an SEP plan. This includes sole proprietorships, partnerships, corporations and non-profit organizations.
- An attractive feature of the SEP plan is that employees may use the same account to which SEP contributions are made for their regular Traditional IRA contributions.
- Contributions to SEP IRAs are immediately 100% vested, which means employees may take the contributions at any time, regardless of whether or not the employee still works for the employer's business.
- Because the funding vehicle for a SEP is a Traditional IRA, the distribution rules of a Traditional IRA also apply to SEP assets.
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