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Sep Retirement Plan – Power to Small Companies

By Guest Author On July 7, 2011 Under Success Secrets

Choosing a trustee for the Sep retirement plan is an important decision. The firm that holds the SEP plan for the business will be responsible for executing investments on behalf of the participants and for providing paperwork and notifications to the employees regarding their account. The trustee for a Sep retirement plan is generally a bank, brokerage house, or other IRS-approved financial institution. The legal document for the plan is Form 5305-SEP, which the employer completes and retains as the reference that describes the plan’s terms. A copy is given to the participating employees . The business owner is responsible for forwarding the employee contributions to the trustee, and keeping the trustee aware of all status changes among the workers . For example , new workers may be added to the Sep retirement plan as long as they meet eligibility requirements. To qualify for the Sep retirement plan, the employee will be at least 21 years of age and have worked for the company three of the past five years. Contribution limits per employee will be capped at the lesser of $49,000 annually or 25% of the employee’s compensation. The business owner is not required to make contributions each year. It’s up to the employer to decide on the percentage if a contribution is to be made, but contributions must be equal for all participating employees. Money from a Sep retirement plan can be withdrawn at any time, but is subject to income tax for the year in which the employee takes a distribution . Withdrawing money from the Sep before age 59 ½ years old can subject the withdrawal to an additional 10% penalty tax. Distributions from the account must start when the participant reaches age 70 ½ years old. Participants cannot take loans from their Sep retirement plan, but are able to roll it over tax-free into another SEP IRA, another traditional IRA, or another employer’s qualified retirement plan.

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