24 Jan 2022
Personal Finance
January 24, 2022 glacierinvest

Individual Retirement Accounts come in many different flavors to meet different needs and objectives. Traditional and Roth IRAs are probably the most common and well known while SEP and SIMPLE IRAs are less familiar to the masses.

A SEP IRA provides business owners with a simplified, and less expensive, method to contribute to their own and their employees’ retirement. Compared to a 401(k), or other type of qualified plan, a SEP is less expensive, less administratively intense, and less regulated.

SEP stands for Simplified Employee Pension. Who doesn’t like simplified?! Per the IRS, a SEP IRA account is a traditional IRA and follows the same investment, distribution, and rollover rules as traditional IRAs.

Employers and self-employed individuals can establish SEP IRAs. Like traditional IRAs there are limits to annual contributions. The good news is the limits are substantially higher at the lesser of 25% of compensation or $61,000 for 2022 ($58,000 for 2021). Employers are required to contribute the same percentage of salary to all employees SEP IRA accounts. An important note, SEP IRAs are funded by employer contributions only so no catch-up contributions are not permitted as they relate to employee elective deferrals only.

Eligibility Requirements

For business owners that have employees, eligibility requirements exist for an employee to participate in the plan. Employees must be included in the SEP plan if they have attained age 21, worked for your business in at least three of the last five years, and received at least $600 in compensation from your business for the year. Note, the compensation requirement is $650 for years 2021 and 2022.

Other interesting SEP facts

  • If you are employed by someone else but generate self-employment income you can set up a SEP for your self-employment income.
  • If you have a SEP IRA through your employer, you may also have a traditional or Roth IRA and contribute to those on an annual basis according to IRS specified contribution limits.
  • You are not required to contribute to a SEP every year.
  • Employer contributions to employee SEP IRAs are tax deductible.

SEP IRAs are a powerful retirement savings vehicle for business owners, especially if they don’t have employees or own the business with their spouse. In the case where both spouses are part of the business, they both must meet the eligibility requirements to participate in a SEP IRA plan.

Warranties & Disclaimers

 

There are no warranties implied.

Glacier Investment Management (“GIM”) is a registered investment adviser located in Kalispell, MT. GIM may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. GIM’s web site is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of GIM’s web site on the Internet should not be construed by any consumer and/or prospective client as GIM’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Any subsequent, direct communication by GIM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of GIM, please contact the state securities regulators for those states in which GIM maintains a registration filing. A copy of GIM’s current written disclosure statement discussing GIM’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from GIM upon written request. GIM does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to GIM’s web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

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