What is a SEP? It stands for Simplified Employee Pension Plan.

It's a retirement plan that allows small employers a relatively simple alternative to a qualified retirement plan. The employer adopts the plan and makes the contributions to a Traditional IRA for each of the eligible employees. The owner of the business is also considered an employee who is eligible to receive a SEP contribution.

The employee designates the Traditional IRA to receive the employer contribution. The contributions are based on the compensation earned for the year of all the eligible employees.

Features

• For tax year 2002, you may contribute up to 15% of the employee's compensation or $30,000 per year, whichever is less. Therefore the maximum compensation is $200,000.00 for year 2002. In other words, $200,000 income multiplied times 15% = $30,000.00 (the maximum contribution to a SEP IRA in 2002)
• Contributions must be made by your tax filing deadline, including extensions
• You are required to make the same percentage contribution for each eligible employee
• An employee who meets the following requirements must be included in the SEP plan. You have the option to make these requirements less restrictive, but not more:
  • Is at least 21 years old
  • Has worked for you during at least three of the preceding five years
  • Has earned at least $450 for the year
• All contributions are fully vested
• A SEP IRA is opened and managed by each employee

If you own a small business and are interested in starting a SEP for your employees, you've come to the right place. Check with your tax accountant to see if starting a SEP is a good idea for your business! There may be a lot of questions with regard to SEP IRA contributions and at the Bank of Zumbrota we can help.

Just like our Traditional IRAs, all SEP Plan funds are safe, guaranteed and insured by the FDIC.