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SEP Traditional IRA – Know the Facts

By Guest Author On February 24, 2011 Under Success Secrets

A SEP traditional IRA is a plandeveloped to let employers contribute to the retirement accounts of their employees through a pre-tax salary reduction. The SEP traditional IRA account is set up for each qualified employee, and each employee maintains control of their own account. Self-employed persons can establish a SEP account for themselves. The SEP traditional IRA makes it possible for small companies to offer retirement benefits withreduced costs and less reporting requirements than most other qualified retirement accounts . The SEP has appealing benefits to offer both the employer and employees.  To be qualified for the plan, the employee must be at least 21 years old , have worked for the company for three of the past five years and received payment of a minimum of $550. Contributions are required to be uniform for all eligible employees, so a 10% contribution to one employee’s SEP traditional IRA requires a like 10% contribution to the accounts of all eligible employees. The employer can contribute up to 25% of annual compensation, and is allowed to adjust the amount and frequency of the contributions, or even suspend them. Frequently companies choose a mutual fundsfirm to hold the account, which provides the employees the chance to make their own investment decisions for their individual accounts. Once contributed, the funds areentirely vested and could be rolled over into another individual retirement account, or for employees who change employment can be transferred to a new employer’s sponsored retirement plan. Distributions from the SEP traditional IRA canbegin as early as age 59 ½ years old. Earlier withdrawal triggers a 10% penalty on top of the standard tax responsibility. Mandatory distributions must start when the account owner is 70 ½ years of age . Employersfavor the SEP traditional IRA for the easy set-up and lower administrative costs. Employees especially appreciate the larger contribution limit allowed in the SEP traditional IRA.

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