First State Bank & Trust Co.
SIMPLIFIED EMPLOYEE PENSION PLAN
|
A simplified employee pension (SEP) plan is a business retirement plan that allows employers
to make contributions to an employee's individual retirement account (IRA), and provides the
employer with a tax deduction. The employer's contribution is not regarded as income to the
employee until the time of distribution.
At First State Bank & Trust Company, we can help you set up a SEP plan for you and your
employer, so you can start saving for retirement today!
Who can contribute to a SEP?
Your employer can contribute to your SEP. The contribution can be made any time before your
employer's tax-filing due date. You may not make contributions to your SEP, but the
contributions your employer makes are not considered income to you when the contribution is
made, so you do not pay income tax on the contribution.
Who is eligible for a SEP?
For your employer to contribute to a SEP Plan, you must establish a SEP/IRA. Your
employer may set some eligibility requirements, such as a minimum age requirement to participate.
Also, your employer
may set a minimum service requirement (cannot exceed three of the last five years), and an
employer can exclude certain non-resident aliens.
What are the contribution limits on an SEP?
Your employer may contribute from zero to 25% of your annual compensation (generally the amount
reported as wages on your W-2), up to a limit of $44,000 annually. If your employer contributes
more than the annual limit to your SEP, it is taxable income to you the employee, and it is considered
a contribution by you to your personal IRA, subject to regular contribution and deduction limitations.
I'm self-employed. Can I contribute to a SEP for myself?
Yes. You may make contributions on behalf of yourself to a SEP. For contribution purposes, your
compensation is equal to the net profit from the business, less one-half of the self-employment
tax and the contribution amount. Because of the complexity of these calculations, you should
consult with your tax or legal professional.
When can I withdraw my savings?
Distributions from a SEP are handled the same as distributions from a traditional IRA.
You may begin to make withdrawals at the age of 59½. Distributions made before the age of
59½ are subject to early withdrawal penalties.
Are my distributions taxed?
Yes. Distributions from your SEP plan are taxable as income in the year they are made. A SEP,
like a traditional IRA, is a tax deferral plan,
whereas distributions from a Roth IRA
can be tax-free. For more information about a Traditional or Roth IRA, click here.
Talk to your tax professional before starting a SEP plan.
|
|
