From
Your Perspective:
Small business retirement plans
SEP IRAs
For a flexible, low maintenance plan, you may be interested in a
Simplified Employee Pension Plan,
or
SEP IRA.
This type of plan tends to work well if you’re self-employed, you’re
the only employee of your company, or your business has up to 25
employees.
Compared to other plans, such as
Keogh
or
401(k)
plans, setup and maintenance are easy and inexpensive. There’s no
annual report to file with the IRS and no official plan document to
draw up.
How it works
A SEP IRA is an employee’s
IRA
to which an employer makes the contributions. Employees don’t defer
salary into the account. The same rules covering distributions,
required withdrawals, and
rollovers
that apply to traditional IRAs apply to SEP IRAs as well.
The
company can make an annual contribution up to the maximum amount, which
is the lower of either $46,000 in 2008 or 25% of the employee’s
compensation. If you have employees, each of them who qualifies must
receive the same percentage of compensation as you do, though not the
same dollar amount.
Opening a SEP IRA is as easy as visiting a bank or contacting another financial services firm that offers IRAs, such as a mutual fund company or brokerage firm.
SEP IRAs have no
vesting
requirement, so employees have the right to withdraw the contributions
you make to the plan at any time that they leave the job.
