What are simplified employee pension plans (SEPs)?
Your employer may sponsor a simplified employee pension plan or SEP. SEPs are relatively uncomplicated retirement savings vehicles. A SEP allows employers to make contributions on a tax-favored basis to individual retirement accounts (IRAs) owned by the employees. SEPs are subject to minimal reporting and disclosure requirements. Under a SEP, you as the employee must set up an IRA to accept your employers contributions. As a general rule, your employer can contribute up to 15 percent of your pay into a SEP each year, up to a maximum of $30,000. If you work for a company employing 25 or fewer people, your employer may establish a salary reduction SEP. If your employer has such a plan, in addition to any employer contributions to your SEP, you may also elect to have SEP contributions made on your behalf from your salary on a before-tax basis, up to the lesser of 15 percent of your pay or $9,240 in 1995. Your deferral contributions are added to any employer contributions to determine the
SEPs are relatively uncomplicated retirement savings vehicles that allow employers to make contributions on a tax-favored basis to individual retirement accounts (IRAs) owned by the employees. SEPs are subject to minimal reporting and disclosure requirements. Under a SEP, you as the employee must set up an IRA to accept your employer’s contributions. As a general rule, your employer can contribute up to 25 percent of your pay into a SEP each year, up to a maximum of $40,000. Starting January 1, 1997, employers may no longer set up Salary Reduction SEPs. However, the Small Business Job Protection Act of 1996 (Public Law 104-188) permitted employers to establish SIMPLE IRA plans beginning in 1997. A SIMPLE IRA plan allows salary reduction contributions up to $6,000 in 2001 ($7,000 in 2002). If an employer had a salary reduction SEP in effect on December 31, 1996, the employer may continue to allow salary reduction contributions to the plan. Employees are generally permitted to contribute
An employer may sponsor a simplified employee pension plan or SEP. SEPs are relatively uncomplicated retirement savings vehicles. A SEP allows employers to make contributions on a tax-favored basis to individual retirement accounts (IRAs) owned by the employees. SEPs are subject to minimal reporting and disclosure requirements. Under a SEP, the employee must set up an IRA to accept the employer’s contributions. As a general rule, the employer can contribute up to 25 percent of the employee’s pay into a SEP each year, up to a maximum of $40,000. Starting January 1, 1997, employers may no longer set up Salary Reduction SEPs. However, the Small Business Job Protection Act of 1996 (Public Law 104-188) permitted employers to establish SIMPLE IRA plans beginning in 1997. A SIMPLE IRA plan allows salary reduction contributions up to $6,000 in 2001 ($7,000 in 2002). If an employer had a salary reduction SEP in effect on December 31, 1996, the employer may continue to allow salary reduction con
