Wednesday, October 31, 2012

SMB Retirement Plan: The SEP

A SEP is a Simplified Employee Pension plan.

According to an American Express Open article written by Mike Periu, a "SEP is setup by a business for the benefit of its employees." The good thing about a SEP is that it can be used by a single member LLC or by any other business with only one person drawing employment income. Hence, SEPs are great for single-person consulting firms or other personal and professional service providers. 

If your business has more than one employee, you can still use a SEP. A SEP, "is a tax-deferred individual retirement account." So the business can contribute money on behalf of all of its employees. That's also the primary limitation of the SEP. A SEP requires that all contributions be the same for all employees. In addition, neither you nor any employee can directly contribute; only the company can contribute. Therefore a SEP pension plan differs significantly from a 401(K) plan.

To read more on the subject, check out the article in its entirety, "Tailored Retirement for Small-Business Owners".

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