A SEP, or Simplified Employee Pension plan, provides a relatively easy way for you, as a small-business owner, to make annual, tax-deductible contributions to eligible employees’ retirement accounts, as well as your own. By establishing an IRA, retirement contributions can be made at a potentially higher level than if not under a SEP.

Farm Bureau can help you set up the program necessary to receive SEP contributions for yourself and your employees. Because they are simplified, SEP plans are easier to establish and administer than other retirement plans. Other advantages include:

Contributions are tax-deductible for you and can be made for you and your employees

Earnings grow tax-deferred

Contributions can vary from year to year ― you decide whether or not to contribute and how much

Valuable employee benefit to help you recruit and retain quality employees

Allows you to contribute a maximum 25 percent of annual compensation (up to a cap, contact an agent for current limit)

All contributions are 100 percent vested for the employee

SEP IRAs belong to the account-holder ― even if an employee leaves, all money contributed belongs to him/her

SEP Eligibility
You may establish a SEP if you are self-employed (with or without employees); or your business is a partnership¹; corporation; limited liability company or government entity.

To be eligible for a SEP, you must be age 21 or older, earn the IRS-established SEP annual minimum salary and have worked for the business at least three of the immediately preceding five years (or the number of years set by you, the employer). All employees who are eligible must be included in the plan.

SEP Guidelines
You must contribute the same percentage of salary for all participants, and there is no vesting schedule (a time period you must wait until you can claim all of your benefit). All contributions to a SEP are tax-deductible for you, but are taxed as ordinary income when withdrawn. Earnings are not subject to tax.

Distributions can start at age 59½ with no IRS penalties and must begin by April 1 of the year following the year they reach age 70½.² As with other qualified retirement plans, there is a 10 percent tax penalty for withdrawing funds prior to age 59½ except in the case of disability, death or other allowable exceptions.

To see if a SEP may meet your business goals and objectives, find a Farm Bureau agent today.

¹ For distribution purposes, the IRS considers the partnership to be the employer and each partner as an employee.
² If the distribution does not begin by age 70½ or does not equal the minimum distribution required, a penalty tax may be imposed that is equal to 50 percent of the difference between the amount that should have been withdrawn and the amount that was withdrawn.