SEP - IRA

BUSINESS - RETIREMENT PLANNING GUIDE

SEP - IRA
Simplified Employee Pensions

A simplified employee pension is a written plan that allows you to make contributions toward your own (if you are self-employed) and your employees retirement without getting into a complex plan design.

How It Works

Instead of establishing a separate retirement plan, in a SEP, the employer makes contributions to his or her own Individual Retirement Account (IRA) and the IRA's of his or her employees, subject to certain percentage limites and dollar limitations.

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SEP-IRA Overview

	Employer	Employee
Eligibility	Any self-employed individual or business that does not currently maintain any other retirement plan.	Employees must be included in the plan if they: Have reached the age of 21 Have worked for you in at least 3 of last 5 years Earned at least $450 from you last year.
Contribution Levels	Up to 25% of the employees annual compensation, or $40,000 for 2002	Employees cannot contribute
Advantages	Easily established Low start-up costs Low operating costs Economic flexibility as contributions not required every year	Immediate vesting Employer contributions to a SEP-IRA do not affect amount employee can contribute to a Roth IRA
Disadvantages	Employee vesting is immediate	Employees cannot contribute
Withdrawals	Not applicable.	Withdrawals at any time, subject to current federal income tax and possible 10% penalty if under 591/2.

Set up plan by completing IRS Form 5303-SEP.

No employer tax filing is required.

Sources: Internal Revenue Service, U. S. Department of Labor.

Simple - IRA

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