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Simplified Employee Pension Plans for the Self Employed

Simplified Employee Pension Plans for the Self Employed

July 05, 2023

When it comes to saving for retirement when you are self-employed, a SEP plan is one of several options available. A Simplified Employee Pension (SEP) is a type of retirement plan you, as an employer, may establish by completing IRS Form 5305-SEP, setting up an Individual Retirement Arrangement (IRA) account for each employee, and making contributions. Beyond those three steps, there are usually no IRS filing requirements, so from an employer perspective, the SEP plan may be relatively easy and low cost retirement plan to maintain.

A SEP plan may be ideal if you are a solopreneur (the only employee) and want to contribute a higher amount to your retirement account than what you may contribute to a traditional IRA and/or have concerns about the predictability of the cash flow for your business. A SEP plan may also be ideal if you want to offer a retirement plan benefit to your employees. For employees to receive contributions, they must meet eligibility requirements. In general, eligibility requirements include age (the employee must be 21 years old), tenure with your company (have worked for you at least 3 of the last 5 years), and minimum compensation (received at least $750 in compensation for 2023). However, you may use less restrictive requirements (for example, lower age to 18), but not more restrictive and, when you choose to contribute, you must contribute to each eligible employee’s SEP IRA.

In my work as a financial planner, I help self-employed individuals discover options available to support a goal of retirement and a SEP plan is one. Whether or not you are self-employed, learn more about retirement plans available to you by consulting with your financial planner or tax professional.

Wendolyn Forbes is a CERTIFIED FINANCIAL PLANNER™ with Wealth Transition Finance, A Member of Advisory Services Network, LLC, offering financial planning and investment management services.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP® (with flame design) in the US, which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

This material is provided as a courtesy and for educational purposes only. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Consult your legal or tax professional concerning your individual situation.

Originally published in the July 2023 issue of Positively Haywood by Vicinitus.