Is An SEP Retirement Plan Suitable For Your Company?Individual Retirement Accounts are the primary retirement planning vehicles in United States. SEP Retirement plans are among the most popular plans because they are easy to set up, affordable to administer and act as a great way to hire and retain the best people. SEP Retirement plans are not however suitable for all the businesses. If you are planning in this direction, you must check the suitability of SEP Retirement plans for your business. First thing you must know is that SEP plans are profit sharing plans. As an employer, you are allowed to contribute as much as 25% of the wages that the employee made from your company to his SEP retirement account. You have to keep in mind that the 25% limit is further regulated by the earmarked amount. In 2007, the ear marked amount was $45000. As of 2008, the earmarked amount is raised to $46000. Take it like this. There are two employees in your company. One earns $100,000 annually and the other earns the double i.e. $200,000. According to the 25% regulation, contribution to first employee's SEP is $25000. In case of the second employee the 25% is 50,000 dollars. This however is restricted to $46000 because of contribution cap. The thing is that your organization must be ready to contribute as much as a quarter of employee's income as an extra to him. The second thing is that if you already maintain any other qualified retirement plan, SEP retirement plans are not an option. They can not exist in parallel with any other qualified retirement plan. What is to be kept in mind is that the other plan needs only to be maintained. This is regardless if you are making any active contributions to that account or not. The third thing is that this plan is not available on a selective basis. There are three main requirements of SEP plan. First is that employee must have completed the age of 21. Second is that the employee must be working for your company for three out of the last five years. The third is that the employee must have made a declared amount of money from your company as his earning. In order to institute SEP retirement plan, it is a must that every single employee of the company who is eligible for this plan must be enrolled in this plan. This plan can not be provided departmentally. It has to be implemented on an organization wide basis. In some cases employees might be having other IRAs which would need a roll over. Be prepared for the IRA roll over hassles if you want to implement SEP retirement plans in your company. |