SEP Plan

Many employers want to provide retirement benefits to their employees but want a retirement program with a reduced level of the complexity. A SEP plan may be a suitable solution for an employer.

What is a SEP Plan?

A SEP plan is a retirement plan created under the Internal Revenue Code that allows an employer to fund annual discretionary contributions to an individual retirement account (IRA) on behalf of their employees. The employer is not required to fund a contribution each year and the decision to fund a contribution does not require the company make a profit for the year. However, the employer must determine who is eligible for the contribution and setup the IRA account for the employees.

The employer must make a contribution for all employees who have worked for the employer for at least three years and have had compensation in excess of $550 (indexed) in each of those years. The employer has the option to adopt more lenient eligibility provisions but three years is the maximum period an employee can be excluded from the plan. In addition, the employer is not allowed to require the employee to work a specific number of hours during the year or be employed on the last day of the plan year in order to receive a contribution.

How much can I contribute to a SEP Plan?

An employer can contribute and deduct on the employer’s tax return any plan contributions up to 25 percent of eligible employee compensation. The plan contribution must be allocated to each eligible employee on a pro rata basis. This means each eligible employee will receive the same percentage of compensation contribution for the year. The contribution will be deposited in an IRA established on behalf of the employee and the employee will have sole discretion of the investments.

Can employees contribute to the plan?

The employees are not allowed to contribute to the plan. A SEP plan is solely funded by the employer.

Is the Employer required to contribute to the Plan?

The employer is not required to contribute to the plan each year. Contributions to the plan are discretionary which permit the employer to evaluate the company’s financial position each year before committing to a plan contribution.

How does an employee receive their money from the plan?

The employee has full access to his/her plan account after the account is established, thus the employee has the option of taking a distribution from his/her account at any time. However, the employee will be required to pay federal income taxes on the distribution and may be subject to an early withdrawal penalty if the distribution is taken prior to attaining age 59 ½ .

What is required to administer a SEP Plan?

In order to establish a SEP plan, the employer will need to adopt a SEP plan document. This can either be completed by executing a Form 5305-SEP or a SEP prototype plan document provided by your financial institution. Once the document is executed, the employer will work with a financial advisor and a financial institution to establish the IRA accounts. After funding the plan, the employee will receive statements from the financial institution and work with the financial advisor regarding the investment of his/her account.

What are the first steps to getting a SEP plan started?

If you are interested in exploring a SEP plan for your company, please contact Resource Benefits Administrators at (254) 776-6214 or (512) 342-1652 and a representative will assist you with your questions and the procedures needed to get your plan established.

3415 Greystone Drive, Suite 205
Austin, Texas 78731
(512) 342-1652
5400 Bosque Blvd, Suite 500
Waco, Texas 76710
(254) 776-6214

© Resource Benefits Administrators, All Rights Reserved.

Site by McKinleyBrown & Bradley