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SEP IRAs

SEP IRAs. PLEASE DO NOW …. In your notebooks, please answer the following questions: Compute: $120,000 x 25% How does a self-employed individual save for retirement?. TODAY’S GOALS. What is an SEP plan? Why establish an SEP plan? How do we contribute to an SEP plan? SEP distributions.

norman-owens
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SEP IRAs

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  1. SEP IRAs

  2. PLEASE DO NOW… • In your notebooks, please answer the following questions: • Compute: $120,000 x 25% • How does a self-employed individual save for retirement?

  3. TODAY’S GOALS • What is an SEP plan? • Why establish an SEP plan? • How do we contribute to an SEP plan? • SEP distributions.

  4. INVESTMENT MANAGEMENT STANDARD(S) Achievement Standard: Evaluate savings and investment options to meet short and long-term goals. Achievement Standard: Evaluate services provided by financial deposit institutions to transfer funds.

  5. DEFINITIONS TO KNOW • SEP (Simplified Employee Pension) • Rollover

  6. WHAT IS A SEP PLAN? • A retirement plan established by employers, including self-employed individuals, partnerships, & sole proprietorships. • IRA-based plan to which employers make tax-deductible contributions on behalf of employees.

  7. WHY ESTABLISH A SEP PLAN? • To provide retirement income for ourselves and our families. • Unlike qualified plans, they are easy to administer. • Unlike qualified plans, employees are 100% vested in the employer contributions. • To defer paying taxes. • Contributions are not taxed • Distributions are taxed.

  8. HOW DO WE CONTRIBUTE TO A SEP PLAN? For 2013, an employer may contribute up to 25% of the employee’s compensation, providing the contribution does not exceed $51,000. Example:Matt owns his own business and does not have any employees working for him. He is planning on paying himself $250,000 this year in salary. If he opens up a SEP plan, what is the maximum contribution he can make to the plan this year? Maximum Annual Contribution to SEP= The lesser of $51,000 or (Salary * 25%) Maximum Annual Contribution to SEP= $250,000 * 25% Maximum Annual Contribution to SEP= $250,000 * 25% = $62,500 Maximum Annual Contribution to SEP= $51,000

  9. PLAN LIMITS As a comparison… ? ?

  10. SEP IRA DISTRIBUTIONS • In general, distributions from a SEP IRA must occur after age 59½. • In general, distributions that occur before 59½ will be charged a 10% early distribution penalty. • There are some exceptions to the 10% penalty rule. • A SEP IRA owner must begin required minimum distributions (RMDs)the year he or she reaches age 70½.

  11. A LOOK AHEAD… • Case Study #4 • Traditional IRAs

  12. QUESTIONS???

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