Choosing a retirement plan for your company can get very confusing. There are a lot of plans available today, each with their own pros and cons. If you are running a small business with a small group of employees or currently self-employed, then you would want a retirement plan that is easy to setup and flexible with contributions and fees. If these are the qualities that you want from a retirement plan, then consider getting a SEP IRA. But what is a SEP IRA?
A SEP is a retirement plan setup by employers for easy distribution of contributions for the employees. In this plan, only employers can make contributions. Employees on the other hand, are the ones who will setup their individual IRA plans.
A highlight of the SEP plan is its flexibility when it comes to contributions. An employer can choose whether or not he or she wants to make a contribution the SEP plan. The amount of the contribution to be given is also up to the employer. This no pressure setup is very beneficial for employers on a strict budget or profits that are not so favorable. If the business is not doing very well at this point in time, then an employer can choose not to contribute or lessen the amount that he or she wants to contribute. This allows the funds to be channeled to areas in the business where it can improve profits in the future.
If the business is doing well, then the high contribution limits (25% of employee’s annual compensation or $49,000 whichever is less) allows the employer to make big contributions to the SEP plan, to the benefit of the employees involved.
If flexibility is what you are looking for in a retirement plan, then a SEP IRA is one plan that you should consider. It gives a lot of freedom for employer’s contribution without sacrificing the benefits of the employees.