SEP - Beneficial Plan for Employers and Employees

Simplified employee pension (SEP) plans makes the retirement programs more soluble and easy for the employees. The cost included in these programs is lower than most other programs and benefits are higher than other well known retirement programs in the market. Small business owners are also highly benefited by such retirement solutions.

The advantages offered to the employees are beneficial to the employers too. SEP raises many similar plans that become beneficial for both the employers and the employees.

What makes SEP beneficial for the employees?

•    Firstly, it provides tax shelter benefit to the employer.
•    It turns out to be very important for the employers in the sense that it reduces the cost for making the pension plans and even the record maintenance and maintenance of this program is much simpler than any other program.
•    Employees feel more secured for their future as SEP offers more contribution than regular IRPs.
•    The SEP programs are easily moveable and flexible. The employee leaving the company can easily change his balances of SEP account into an IRA account, depending upon the terms set with new employer.

SEP- Retirement Program

The working of this program is calculated on the basis of individual accounts that are maintained by the company for their employees.

The working of SEP plan starts when the company establishes IRAs for all their employees who show their interest in this program. The company is then subject to complete the funds, or say the contribution , that are required to cover the limits of SEP. The yearly contribution that is required to be paid by the employer is not less than 25 % of the employee’s compensation. In other words, it has to be $40,000 per year. The funds that are submitted by the employer in this retirement plan is not to be included in the current salary income of the employees.

Other alternative plan- Salary reduction option

SEP program turns out to be very effective retirement program for the employees especially. Employers can derive benefits from the same by raising the funds that are required for this program from their pre-tax salary reduction. This plan makes SEP to me the most effective plan which can easily work like a 401(k) plan. Under the salary reduction SEP program or SARSEP, employees have the option to suspend their $12,000 fund to this plan in 2003 and thus, enhance reduce cost benefit to the employers.
No new plans have been added to this salary reduction SEP after 1996. However, various new contributions have been made to make the program more beneficial for the employees.