Broker Check


Exploring Qualified Retirement Plans 

Exploring Qualified Retirement Plans 

What you need to know to decide which plan is right for your business. 

Click Here

Simplified Employee Pension (SEP) Plans 

A SEP plan is an employer-sponsored, tax-favored retirement plan that offers small businesses an attractive alternative to standard profit sharing plans. In a simplified employee pension (SEP) plan, an employer deposits contributions into the IRA accounts of each participant rather than into an employer trust account, thereby sim-plifying the accounting process. And, unlike a traditional qualified plan, a SEP doesn’t involve an extensive written plan document and has minimal compliance reporting and disclosure requirements. Some advantages of establishing a SEP Plan include:

Easy setup

A SEP plan is like a “corporate IRA” estab-lished by an employer for the benefit of each employee. There are no requirements for a separate employer trust account, because each employee establishes his or her own SEP IRA.

Tax advantages

SEP contributions are tax deductible to the employer, and all earnings are tax deferred for employees.**Withdrawals may be subject to income taxes,
and prior to age 59 1/2 a 10% federal penalty tax may apply.

Minimal administrative costs

Employers sponsoring SEP plans are not required to file annual plan returns, unlike employers sponsoring qualified pension or profit sharing plans.

Contribution flexibility

Employers can make annual discretionary contributions of up to 25% of each eligible employee’s compensation.

Tax-planning flexibility

Unlike qualified pension or profit sharing plans, SEP plans can be established until tax-filing deadlines, including extensions.

Investment flexibility

Because employees can choose where their accounts are established, they may have a wide range of investments from which to choose.

Limited liability

Employers’ fiduciary duties are reduced because participants choose their own investments after establishing their SEP IRA accounts.


A savings incentive match plan for employees (SIMPLE) IRA is an IRA-based plan that gives small employers an easy way to make contributions toward their employees’ retirement by either matching employees’ contributions or making non-elective contributions to all employees. The startup and maintenance costs are very low compared to qualified plans. Business entities, including self-employed persons, partnerships and corporations, as well as certain tax-exempt organizations, can establish SIMPLE IRA plans for their employees.


The SIMPLE IRA allows an employer to help employees to accumulate assets for their retirements. The plan is funded jointly by em-ployees’ elective salary deferral contributions and employer contributions. Both employee and employer SIMPLE IRA contributions are tax deductible and, because the contributions are made to an IRA, the earnings inside the account are tax deferred until withdrawal.  Each employee can specify the percentage of pay he or she wants the employer to withhold and contribute to the plan, up to the employer’s stated maximum. The maximum amount employees may defer in 2017 is limited to $12,500. Participants who are 50 and older may make additional “catch-up” contributions of up to $3,000. 
The employer is required to make a fully vested contribution using one of the following formulas:
• Match elective deferrals dollar for dollar• Match elective deferrals dollar for dollarup to 3% of a participant’s compensation (compensation includes employee deferrals)
• Make a 2% contribution to all eligible employees, regardless of elective salary deferral, who received $5,000 in compensation from the employer in that year.


There are two basic investment formats for the SIMPLE IRA – a self-directed IRA and a vendor’s product. It is important for employers and employees to understand the advantages and disadvantages of each alternative before implementing or modifying their SIMPLE IRA plans.

Self-Directed SIMPLE IRA

A self-directed IRA provides the flexibility to invest in almost the entire spectrum of investment alternatives, in-cluding individual stocks, bonds and independent money managers.

Vendor’s product

This format provides only the investment options offered by mutual fund and insurance companies, within a SIM-PLE IRA “package.” While the flexibility may be limited in comparison to the self-directed IRA alternative, the investing process is much more streamlined, resulting in lower custodial and service-delivery costs to the par-ticipant. For participants investing small amounts on a periodic or payroll-deduction basis, a vendor’s product is usually much less expensive and a more efficient way to invest.


Setup and administration

To establish a SIMPLE IRA, the employer must sign an adoption agreement defining the plan provisions. All eligible participants then must complete and sign elec-tive deferral agreements indicating the percentage of pay they wish to contribute. SIMPLE IRAs are then established to receive the contributions.
Employers should consider the following rules before es-tablishing a SIMPLE IRA plan:

• An employer may not have more than 100 employees who received at least $5,000 in compensation from the employer in the preceding calendar year.• An employer may not have more than 100 employees who received at least $5,000 in compensation from the employer in the preceding calendar year.
• The employer must allow employees to make deferral elections or modify previous elections within a 60-day period preceding an upcoming plan year. A plan year, for the purposes of a SIMPLE plan, is a calendar year.


Not all employees must be covered under a SIMPLE IRA plan. The employer may exclude any employees who have not earned at least $5,000 during any two preceding years and/or who are not expected to earn at least $5,000 in the current year.

Other considerations

Employees who participate in a SIMPLE plan are considered active participants for the purpose of deter-mining the deductibility of a regular IRA contribution. An employee must elect to defer a specified percentage of compensation as opposed to a dollar amount.
Participants who take withdrawals from a SIMPLE plan prior to age 59½ are generally subject to the same 10% early withdrawal penalty applicable to other IRA account holders. However, participants who withdraw SIMPLE plan contributions during the two-year period beginning on their initial participation date will be assessed a 25% penalty tax instead of the 10% tax.