Save Now for Retirement
If you are a small business owner with few employees or limited resources, then a Business SEP can help jumpstart your retirement saving needs. In fact, a self-employed person can easily establish a Business SEP and make contributions to his or her own IRA. SEPs are also easy to maintain unlike traditional retirement plans (401K). Contact a Business Relationship Specialist today to get started.
Eligibility
Self-employed or small-business owners.
Tax Benefits
SEP earnings are tax-deferred, and contributions are tax-deductible*.
Contributors
SEP contributions are made by the employer.
*Consult your tax advisor
What Is a SEP IRA?
A SEP is a retirement plan through which an employer makes contributions to the IRAs of eligible employees. Unlike a regular IRA, contributions cannot be made to a SEP IRA for the prior year.
SEP contributions do not affect the amount of regular IRA contributions that an eligible employee can make. However, participation in a SEP plan is considered active participation in a retirement plan; it may affect the owner’s ability to deduct regular IRA contributions.
SEP contributions are not reported to the IRS and do not appear on the annual report sent to the IRA owner. However, SEP contributions do become part of the Traditional IRA balance and are included in the year-end fair market value that is reported to the IRS and IRA owner.
SEP IRA Options
Pro Rata Option
This is the most common SEP plan option. With this plan all of your employees will receive the same percentage of compensation as a SEP contribution.
The maximum percentage of compensation that can be made is 25%.
Social Security Integration Option
With this option, higher paid employees receive a greater share of the SEP contributions.
There are two contribution rates. One rate for income at or below the Social Security wage base, the other rate for income above the Social Security wage base.
Under both plans, SEP contributions are made in addition to the employee’s salary, and no FICA or FUTA taxes are paid on the SEP funds.
Keep Your SEP IRA on Track
Required Minimum Distributions
SEP IRA funds are held in Traditional IRAs, so they are generally subject to Required Minimum Distribution, or RMD, rules. An RMD is the minimum amount you must withdraw each year once you reach the IRS-required age. Your first RMD is generally due by April 1 of the year after you reach RMD age, and future RMDs are generally due by December 31 each year.
Your RMD amount is typically based on your prior year-end IRA balance and an IRS life expectancy factor. ICCU can help you review your SEP IRA account information and distribution options, but you are responsible for making sure the correct amount is withdrawn on time. For tax-specific questions, please consult a tax advisor.
Review Your Beneficiaries and Account Activity
Reviewing your SEP IRA each year can help you keep your retirement information current. Check your beneficiary designations, recent account activity, and contribution or distribution history, especially after changes to your business, employment status, or personal circumstances.
IRA accounts do not have joint owners, so keeping your beneficiary information current is an important part of managing your account. If you need to review or update your SEP IRA beneficiaries, contact ICCU and we’ll help you get started.