Define: Simplified Employee Pension Plan

A Simplified Employee Pension Plan (SEP) is a retirement plan that allows employers to make contributions to their employees’ retirement accounts. It is a type of individual retirement account (IRA) that is specifically designed for small businesses and self-employed individuals.

Any employer, including self-employed individuals, can establish a SEP. Eligible employees must be at least 21 years old, have worked for the employer for at least three of the past five years, and have earned at least $600 in compensation during the year.

Employers can contribute up to 25% of an employee’s compensation or a maximum of $58,000 (for 2021) per employee, whichever is less. The contribution limits may change each year, so it is important to stay updated on the current limits.

Yes, employer contributions to a SEP are generally tax-deductible for the employer. However, employees are not allowed to deduct SEP contributions made on their behalf.

Yes, employers have the flexibility to contribute different amounts to different employees’ SEP accounts. However, the contribution percentage or amount must be consistent for all eligible employees within a given year.

No, employees are not allowed to make contributions to their own SEP accounts. Only the employer can make contributions on behalf of the employees.

Yes, employers have the option to skip contributions to a SEP in certain years. However, if contributions are made in a particular year, they must be made for all eligible employees.

Yes, an employer can terminate a SEP plan at any time. However, they must provide written notice to all eligible employees at least 30 days before the termination date.

Yes, employees can withdraw funds from their SEP account before retirement. However, they may be subject to income tax and an additional 10% early withdrawal penalty if they withdraw the funds before reaching age 59 ½, unless an exception applies.

Yes, employees can roll over their SEP account into another eligible retirement plan, such as an individual retirement account (IRA) or another employer-sponsored retirement plan, if the new plan allows for such rollovers. It is important to follow the specific rules and procedures for rollovers to avoid any tax consequences.