A SEP-IRA is ideal for self-employed individuals and for small-business owners who want to offer a retirement package without assuming the requirements of more complex plans. Employers make tax-deductible contributions, while employees themselves do not make contributions to their SEP-IRA.
Advantages Simplicity Establishment and administration of a SEP-IRA is easy. Employers are not required to file reports with the IRS or the Department of Labor, and plan maintenance is significantly less involved than that found in many qualified retirement plans.
Employers may vary the amount of the contributions they make each year or even skip a year if they choose to. This flexibility allows contributions to reflect the profitability of a business.
No annual fees Modern Woodmen does not charge an annual fee for SEP-IRA administration.
Tax-deductible contributions Employers who establish a SEP-IRA plan make tax-deductible contributions directly to SEP-IRAs established for their employees.
The maximum contribution allowed for tax year 2007 is the lesser of (1) $45,000* or (2) 25 percent of an employee’s annual compensation from the employer. The maximum amount of annual compensation that may be considered for the 25 percent limit is $225,000*.
The maximum contribution allowed for tax year 2008 is the lesser of (1) $46,000* or (2) 25 percent of an employee’s annual compensation from the employer. The maximum amount of annual compensation that may be considered for the 25 percent limit is $230,000*.
A SEP-IRA may receive a contribution or be established for the previous tax-year. The deadline for making a contribution for the previous tax-year is the due date (including extensions) of the employer’s tax return for the year.
Tax-deferred growth Contributions and earnings grow tax-deferred until withdrawals are made. Tax-deferred growth allows retirement savings to accumulate more rapidly than it would in a fully taxable account.
Additional information Participation An employer may establish a SEP-IRA as long as they have not maintained another employer-sponsored retirement plan during the year.
Eligible employees must include all full- and part-time employees who are at least 21 years old and have worked for the employer in at least three of the five calendar years preceding the calendar year for which an employer will make a contribution.
More liberal participation requirements are available and are up to the discretion of the employer.
Employees who received less than $500* in compensation in the calendar year, employees who are nonresident aliens, and employees who are covered by a retirement plan under a collective bargaining agreement may be excluded from a SEP Plan.
Withdrawals All withdrawals are subject to ordinary income taxes. A 10 percent premature withdrawal penalty from the IRS may apply if a withdrawal is taken before an employee reaches the age of 59½.
Transfer existing SEP-IRAs to Modern Woodmen If you have an existing SEP-IRA that you are currently contributin gto and would like to move it to Modern Woodmen, avoid additional income taxes by completing a SEP-IRA to SEP-IRA transfer. If you are no longer contributing, you can transfer a SEP-IRA to a Traditional IRA at Modern Woodmen.