Business Banking

Simplified Employee Pension (SEP)

A SEP allows a business, including a sole proprietorship to make contributions toward an employee's retirement using traditional IRAs.

SEP-IRAs are the individual retirement accounts or annuities into which the SEP contributions are deposited. A SEP-IRA must be set up for each eligible employee and cannot be a Roth IRA or a SIMPLE IRA.

Advantages of a SEP for employers:

• Tax benefits: employer contributions are tax deductible business expenses.
• Flexibility: employers can decide how much to contribute, up to the IRS imposed limitations, or whether to contribute at all.
• Ease: a retirement plan that's easier to set up and more economical to administer than a 401(K) plan.
• Employer contributions: for tax year 2009 is either 25% of the first $245,000 of compensation or $49,000 whichever is less.

Advantages of a SEP for employees:

• Tax benefits: contributions are excluded from employee's gross income. Contributions and earnings are tax-free until withdrawn.
• Retirement Plan: employees build retirement savings.
• Contributed funds are not subject to a vesting schedule and are owned by the employee.

Eligible Employees:

• At least 21 years of age.
• Has performed service for you in a least 3 of the immediately preceding 5 years.
• A self-employed individual who has earned income and a working business owner.
• Employees who have earned at least $550 in tax year 2009 or $550 in 2010. This amount is subject to cost of living adjustments. View the COLA Increase Table for these adjustments.
• Certain leased employees must be treated as "employees."