|
• Simplified
Employee Pension (SEP)
•
Simple IRA
•
Profit Sharing
•
Age-weighted/comparablility profit
sharing plans
•
401(k) profit sharing
•
Safe-harbor 401(k)
•
Owner only/one-person 401(k)
•
Defined benefit pension |
SIMPLE IRA Plans
A Simplified Employee Pension plan is an employer sponsored retirement
plan that, unlike a traditional qualified plan, has minimal IRS reporting
and disclosure requirements for compliance. The employer deposits
contributions into the IRA of each plan participant, not into an employer
trust account, thereby simplifying the accounting process. Any type
of business entity, including a sole proprietorship, partnership or
corporation, as well as certain tax-exempt organizations, can establish
an SEP plan for its employees. The plan must be in place and funded
by the date the employer’s tax return is due, including extensions.
Most SEP plans are established using the IRS Model 5305-SEP form.
Eligibility
An employee who is at least 21 years old and has worked for the employer
in any three of the preceding five years is eligible to participate.
An SEP contribution must be made in the current year on his or her
behalf, provided the employee earned in excess of the minimum indexed
compensation amount ($450 in 2006). The employer may set less restrictive
age or service requirements, but the eligibility rules must be applied
on a consistent basis to all employees, including owner-employees.
Contributions
A SEP plan is funded by the employer on a discretionary basis. The
contribution limit for a SEP plan is the lesser of 25% of an individual
employee’s compensation or $44,000 (indexed for 2006) and is
generally allocated on a uniform percentage of salary basis. Social
Security integration is allowed in SEP plans, but increases the administrative
complexity and cost, and is available only when a prototype SEP plan
document is used.
The primary difference between SEP and profit sharing plan contribution
limits is that the 25% SEP limit is applicable to each individual
participant, whereas the 25% profit sharing limit is applicable to
the employer contribution as a percentage of the company’s eligible
payroll.
Advantages
A SEP plan is easy to set up. It is comparable to an employer establishing
and funding a “company provided IRA” for the benefit of
each employee. There are no requirements for a separate employer trust
document and administrative costs are minimal. Employers sponsoring
SEP plans are not required to file annual plan returns (Form 5500)
like those employers sponsoring qualified pension or profit sharing
plans. In addition, the SEP plan offers tax planning and contribution
flexibility. An employer can establish a SEP plan up until its tax-filing
deadline, unlike qualified pension or profit sharing plans, which
must be in place no later than the last day of the plan year.
|
|
|
_r1_c1_r5_c15.jpg){kind=small}
_r1_c1_r8_c15.jpg){kind=small}