What is SEP IRA?
SEP (Easy Employee Pension) IRA
Which is Designed for self-employed people and companies with more than one employee, SEP-IRA is a low-cost, easy-to-manage retirement plan. SEP IRAs are individual retirement plans (IRAs), but are deposited by the employer for employees. The employer must deposit into the account in the employee's name when making the contribution.
Benefits of SEP IRA
It's easy to set up with a simple employee pension plan:
Omit complex administrative processes
No time-consuming government reporting requirements
No anti-discrimination tests required
No complicated confession
Taxes
The amount deducted by the employer from the employee's salary may be tax deductible in the tax year. Funds in retirement accounts similar to traditional IRAs are not subject to tax before being withtaken. As soon as the employer contributes, the funds are immediately owned by the account holder.
Flexible contributions
SEP contributions are very flexible. Employers do not need to contribute annually, and the only requirement is that each employee must receive the same percentage of contributions. If you are over 70 1/2 years old, your SEP IRA account can still be available.
How much can I deposit?
Employers can provide 25 percent of an employee's salary per year, or a smaller amount of $52,000 (the 2014 cap). If your salary exceeds $260,000 in 2014, you are not allowed to participate in the SEP (which is then adjusted for cost-of-living inflation). Contributions must be cash. Employers do not need to contribute annually, but each employee must receive the same percentage of contributions.
Which employees are qualified?
If the company provides an SEP, all eligible employees have the right to participate. A qualified employee is defined as:
At least 21 years of age
At least 3 years of service with this company in the past five years
At least $550 from your employer's salary in the year
You can set your own broader criteria to determine whether an employee is qualified.
The following conditions may not include an employee in the scheme (a) if the employee's retirement benefits are discussed by the trade union representative. (b) The employee does not reside in the United States and is not paid from the United States.
In the case of an employer providing an SEP scheme, qualified employees may not give up on joining the scheme and the employer must also contribute.
Will participation in the SEP program affect the amount of deposits in my other IRA accounts?
Employees participating in an employer's SEP program are "active" and will not affect your right to deposit funds into an IRA retirement account, and your IRA retirement account investment benefits will still be subject to tax relief. However, whether the amount of an IRA account deposit is tax deductible depends on the individual's annual income. Still, the amount of contributions made by the SEP program is much higher than the cap on individual IRA deposits.
