Simplified Employee Pensions (SEPs) and SIMPLE Plans

Are You Eligible?

Only an employer can establish a SEP arrangement. In order to sponsor a SEP, you can either be in business by yourself or have employees. If you have eligible employees, you must fund the SEP on their behalf; i.e., you must make contributions to the SEP plan for your eligible employees. You, as the employer, are also responsible for establishing and maintaining the plan.

The participation requirements for a SEP are generally broader than those for Keogh plans. An eligible employee for a SEP is one who meets these conditions:

  • Is at least 21 years old
  • Has performed service for you in at least three of the immediately preceding five years
  • Receives a minimum amount of compensation set annually ($600 in 2019 and 2018) by the IRS

IMPORTANT NOTE: Because of the less restrictive participation rules (see above), SEPs are typically less popular for employers than other retirement plans.

Supercharging Your IRA

A SEP is better than an IRA because an IRA allows you to put away only up to $6,000 in 2019 ($5,500 in 2018). SEPs are IRAs that an employer sets up for its employees as part of a retirement plan. Like a qualified plan, SEPs are subject to overall contribution limitations (similar to a Keogh plan).

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