Understanding SEP IRA Accounts and the SEP IRA Rollover

23 Mar

The term SEP IRA is short for Simplified Employee Pension, a retirement account designed to help securely finance your retirement. SEP IRA Rollover is an extremely popular and well-known financial solution that many employers and self-employed workers utilize to help successfully prepare for retirement.

The SEP IRA account allows you to make tax-deductible contributions – this makes the SEP an appealing investment option to consider.  Sole proprietors, self-employed individuals and employers can set up SEP IRA accounts quickly and easily.  The SEP IRA also allows employers to claim a tax deduction for contributions made on behalf of any employees.

If you are an employer and you wish to set up an SEP IRA account to invest for yourself and your employees, there are a number of key points that you’ll need to understand to ensure that you set up and manage this excellent investment option properly.  Similarly, if you’re self-employed or a sole proprietor, you’ll still find the following key points relevant.

Written Agreements for SEP IRA Accounts

If you’re investing funds into an SEP IRA account, you’ll need to have a formalized written agreement, meaning that you must lodge your formal SEP IRA agreement with your tax return.  This effectively means that you will have until April 15 to ensure that your agreement for the SEP IRA is properly lodged.  There is a template form that you can access from the IRS – Form 5305 SEP – which provides straightforward explanations that will help you to collect and lodge the appropriate information within the correct timeframe.

Eligibility Requirements

In order to qualify for an SEP IRA account, employees need to be 21 years of age and they need to have worked for you for three of the five years preceding your lodgment of the SEP IRA form.  In addition, eligible employees need to earn at least $500 per year to qualify.  Union members and non-residents may be excluded from participating in an SEP IRA.

Key Advantages of an SEP IRA Account

The core advantages of an SEP IRA are tax deductibility, low administrative costs and relatively low-risk investment.  This is a government approved and sanctioned form of investment for your retirement, so security and safety form important cornerstone advantages for this investment account option.  An SEP IRA allows tax-free contributions up to a maximum of $49,000 or 25% of income each year, so there are significant savings to be made.

SEP IRA Rollovers

Another major advantage with SEP IRA accounts is the ability to perform an SEP IRA rollover both into and out of your current account.  This offers you and your employees two different sets of benefits.

First, employees can transfer funds from past 401k or 403b accounts into their current SEP IRA plans without tax penalties.  This makes it easier for employees to manage all of their retirement funds through one streamlined account.

Additionally, an SEP IRA rollover makes the transition process simple for employees who are leaving your company for other positions, as they will be able to easily move their funds to whatever new account they choose.  The paperwork needed to complete these SEP IRA rollovers is very straightforward as well, leaving you with more time to focus on running your business.

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