Simplified Employee Pension – Individual Retirement Accounts

A Simplified Employee Pension in an IRA plan (SEP-IRA) is a retirement savings plan created specifically for self-employed or small business owners.

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Individual Retirement Accounts (IRAs) provide tax advantages for retirement savings. An SEP-IRA has numerous benefits including larger contributions than a standard IRA. Sole proprietors, business owners and partnerships are eligible and contributions are tax-deductible. The employer determines if contributions are made and for how much each year. Signing up is easy and all contributions and earnings are tax-deferred until withdrawal.

Who may have a SEP-IRA plan?

Sole proprietors, business owners and partnerships are eligible. All self employment income qualifies as long as it was earned income.

What are the contribution limits?

A business owner may shelter up to 25% their compensation each year. For 2009, the limit is $49,000; in subsequent years it is subject to a cost of living adjustment.

Do these plans require funding each year?

No, contributions (and the amount contributed) remain a decision of the firm. However, if a plan is funded, the same percentage must be distributed to each employee.

For more information on SEP-IRAs and the impact on your finances and taxes, consult your tax advisor. To open a SEP-IRA, please see your FBT Banker at any branch location or call First Bank and Trust toll-free at 1-877-426-2498.