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SEP & SIMPLE IRAs

 

A SEP or SIMPLE IRA might be an appropriate option for you and your employees.


cattle farmersA Simplified Employee Pension Plan (SEP) is a retirement plan an employer can establish for employees (self-employed individuals can also adopt a SEP plan). Employer SEP contributions, which can be as high as $49,000 a year for each employee (in 2011), are made to employee traditional IRAs (usually called SEP IRAs). All of the rules applicable to traditional IRAs apply to SEP IRAs. In addition, employees can make their own traditional (but not Roth) IRA contributions to their SEP IRAs, subject to regular traditional IRA rules and contribution limits.
 
A Savings Incentive Match Plan for Employees of Small Employers (SIMPLE IRA plan) is also an employer-sponsored retirement plan. With a SIMPLE IRA, both the employer and the employees make contributions to SIMPLE IRAs established for the employees (employees can defer up to $11,500 in 2011, $14,000 if age 50 or older). SIMPLE IRAs are different from traditional IRAs-- employees can't make regular IRA contributions to SIMPLE IRAs. After an employee participates in the SIMPLE plan for 2 years, however, the employee can roll the SIMPLE IRA assets into a traditional IRA.

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