Broker Check

Is a SEP-IRA Right for Your Business?

| February 08, 2016
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If you're like many small business owners, running your own business is an all-consuming endeavor.

In the face of everyday demands, choosing a retirement plan for your business can become a casualty. The idea of establishing a plan could evoke worries about complicated reporting and administration.

If this sounds familiar, then you may want to consider whether a Simplified Employee Pension (SEP) may be appropriate for you. A SEP can be established by sole proprietors, partnerships and corporations, including S corporations.

The SEP IRA gives the flexibility to vary employer contributions each year from 0% up to a maximum of 25% of compensation, with a maximum dollar contribution of $53,000 in 2015.

The percentage you contribute must be the same for all eligible employees. Eligible employees are those age 21 or older who have worked for you in three of the last five years and have earned at least $600 (in 2015). Employees are immediately 100% vested in all contributions.

There are no plan filings with the IRS, making administration simple and low cost. You only need to complete Form 5305 SEP and retain it for your own records. This form should be provided to all employees as they become eligible for participation.

Unlike other plans, a SEP may be established as late as the due date (including extensions) of your business’ tax filing (generally April 15th) for making contributions for the prior year.

The SEP earns the “simplified” in its name and stands as an attractive choice for business owners looking to maximize contributions while minimizing their administrative responsibilities.

Julia M. Carlson is a registered Principal with, and securities are offered through, LPL Financial. Member FINRA/SIPC

The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

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