A SEP is a Traditional IRA account that is established by an Employer for eligible Employees.
Generally, all Employees are eligible; however, the Employer can choose to exclude:
- Maximum age requirement is 21
- Maximum service requirement is 3 of the immediately preceding 5 years
- Compensation below $600.00 (2020) or $650.00 (2021), union membership, and/or nonresident alien status may disqualify employee from participation.
Once an Employee meets the company’s eligibility requirements, they cannot be excluded from the Plan. Each year the Employer determines the contribution level, which can range from $0 to up to 25% of each eligible Employee’s compensation (salary, bonuses, tips, etc.) not to exceed specified limits (2020 limit – $57,000; 2021 limit – $58,000). Contributing Employers should be referred to an accountant or tax advisor for actual contribution limits allowed.
- The contribution percentage must be the same for the Employer and all eligible Employees.
- The Employer is not required to make contributions each year.
- Any Employer, including a sole proprietor with no Employees, can establish a SEP for the benefit of all eligible Employees and themselves.
The Employer and each eligible Employee must establish an IRA plan at a financial institution. Once the SEP Master Plan is established using the 5305-SEP document, the Employer provides a copy to each eligible Employee. The Employee must open an account in order to receive Employer contributions.
To learn more about SEP IRA Plans through Metairie Bank, call us at 504-834-6330.