SEP IRA Eligibility
Wondering about SEP IRA eligibility? Simplified Employee Pension plans, commonly known as SEPs, were created for small businesses, the self-employed, and work well for partnerships, LLCs, S and C corporations, and sole proprietorships. The SEP is essentially a group of individual retirement accounts maintained for the employees. True to its name, the Simplified Employee Pension Plan – or SEP – is simple. It’s simple to set up and to administer, simple to establish SEP IRA eligibility for participants, and simple to administer and maintain. For the small company, qualifying employees is straightforward. The eligible employee must be at least 21 years old, have worked for the company for three of the last five years, and been compensated for their work with at least $550. For employee’s, the SEP allows noticeably higher contribution limits than other types of IRAs. This allows them to accumulate more savings for retirement at a quicker pace. These SEP accounts are funded through a pre-tax salary reduction, and the employee can defer up to 25% of annual compensation. All contributions must be consistent, so a 20% contribution to one employee account calls for a similar 20% contribution to all other eligible employee accounts. All contributions must be made by the final tax filing deadline, including extensions, and the account is completely vested once contributions have been made. This makes the account portable, and able to be rolled over into another type of individual retirement account, or in the case of a job change transferred to a retirement plan sponsored by the new employer. Small companies often choose a mutual fund company to administer the plan, allowing the employees to make their own investment choices. They can decide among the approved funds and invest in a manner that fits their goals and retirement needs. SEP plans offer an effective retirement planning option for employees, while providing the employer with a very effective legal tax shelter. The plan makes it possible for employers to offer their workers the benefit of retirement savings when they may not have the resources to offer a more conventional plan. A self-employed individual does not get wages, so their contribution is calculated on net profits from the business venture, allowing them to contribute $44,000 per year, or 20% of net profit, whichever is less. Again, simple and straightforward requirements are the hallmark of a SEP, including establishing the SEP IRA eligibility. SEP plans were designed to provide a number of advantages. The SEP is simple to establish, and the administrative costs are inexpensive. The contribution limits are generous, allowing the participants to save a significant amount of money toward their retirement. The SEP IRA eligibility guidelines are also clear and easy, making it simple to qualify employees to participate.