The Simplified Employee Pension (SEP) IRA is a tax-deferred individual retirement savings account which entrepreneurs of small businesses and self-employed people can establish. The scheme allows them to make monetary contributions into a personal retirement account (IRA) for themselves and their employees. It is identical to the traditional IRA plans in many aspects. However, the SEP-IRA schemes contain additional rules and advantages which they should know about before participating. These include higher contribution limits than traditional IRAs and the ownership of the financial assets under scheme vesting with the employees. Moreover, the entrepreneurs who participate in the SEP-IRA scheme cannot sanction loans to their employees, unlike 401(K) plans.
Arbor Financial Melbourne – Who can open a SEP IRA scheme?
Arbor Financial Melbourne is a credible name in investment securities in the USA. It is an SEC-registered investment advisory firm and known for its qualified team of experts. According to them, sole proprietors, owners of partnership firms, companies, and non-profit generating organizations can establish SEP-IRA schemes for their employees. However, these retirement savings accounts are ideal for small businesses that do not maintain a large workforce.
These schemes enable them to offer attractive retirement benefits for employees on their payroll. However, they do not incur the exorbitant start-up and administrative operating costs of other traditional employer-sponsored plans. Moreover, these employers can avail of relevant tax deductions and tax breaks for the monetary contribution under the scheme. This helps them save money and retain the loyalty of their workforce.
Who is eligible to participate in the SEP-IRA scheme?
Entrepreneurs and other employers should know their employees can only participate in the SEP-IRA scheme if they meet the following criteria:
- They are above the age of 21 years and have been on business payroll for at least three years,
- All of them should be earning a remuneration of at least $650 in the previous year.
Moreover, they should have absolute discretion in determining which employee to invite or exclude from participating in the scheme. However, they cannot include those who agree to participate in the collective bargaining scheme containing specific retirement benefits.
Are you opening the SEP-IRA scheme?
The Internal Revenue Service (IRS)rules state entrepreneurs and employees need to follow the following steps to open a SEP IRA scheme:
- Create a written agreement to offer retirement benefits to the employees via Form 5305-SEP,
- Submit the Form 5305-SEP to the relevant IRS authorities themselves or via a financial vendor,
- Provide eligible employees with information on their intention to set up a SEP IRA scheme, and
- Set up individual SEP IRA accounts for all of their privileged employees.
According to the experts of Arbor Financial Melbourne, the SEP-IRA scheme is ideal for entrepreneurs of small businesses who want to offer retirement benefits to their loyal employees. There are hardly any papers under the scheme, and they only incur nominal set costs compared to other employer-sponsored plans. Above all, they can claim tax deductions, breaks, and credits equivalent to a certain percentage of the start-up costs and monetary contributions.