In a SEP-IRA plan you can contribute the lesser of $49,000 for 2009, or 25 percent of the employee’s compensation (subject to future cost-of-living adjustments).

You can be flexible in the years you select to make a contribution. When you contribute, you must contribute to all the SEP-IRA participants who actually performed work for your business during the year, for which the contributions are made, even employees who die or terminate employment before the contributions are made. Contributions for all employees generally must be uniform – for example, the same percentage of contributions.

Your obligation is to forward contributions to the financial institution/trustee for those employees who participate as described in your plan document. New employees, for instance, will include them in the SEP-IRA if they satisfy the eligibility criteria described in the plan.

Eligible Employee for a SEP-IRA.

All eligible employees must participate in the plan, including part-time employees, seasonal employees, and employees who die or terminate employment during the year.

Rollover over to a SEP-IRA Plan.

You can rollover or transfer your IRA in to other qualified retirement accounts such as an IRA, or you could rollover your IRA into a SEP-IRA. They may also convert the IRA into a Roth IRA, paying taxes for the amount converted.

Setting up a SEP-IRA Plan.

There are three steps to establishing a SEP IRA:

Administer a SEP-IRA.

All of the contributions go into the participant’s IRA, and the participant is immediately 100% vested in the contribution. A SEP-IRA participant may purchase any investment allowed in an IRA, this allows participants complete control over their investments, just as they would have in a regular participant IRA.

When employees participate in a SEP-IRA, they must receive certain key disclosure documents from the company.

SEP-IRA plans are an ideal pension savings plan for smaller businesses (generally with around 20 or fewer employees) because of the flexibility afforded the employer in timing and amounts of contribution, ease of use, reduced administration expenses and the fact that there is no limit to the number of employees that a SEP-IRA plan may cover.

A SEP-IRA plan offers the advantage of a contribution which is potentially much larger than an IRA contribution. Employees who participate in a SEP plan are considered “active participants” in an employer retirement plan. As such, the deduct-ability of their IRA contribution may or may not be affected, depending on their income. SEP-IRA plan participation does not, however, reduce or eliminate an employee’s ability to fund an IRA, and all IRA earnings are tax-deferred, regardless of SEP plan participation.

SEP-IRA’s are not required to file annual financial reports with the Federal Government. SEP-IRA contributions are not included on the Form W-2, Wage and Tax Statement.

Restrictions and Penalties for a SEP-IRA.

SEP-IRA plan cannot discriminate between employees.

SEP-IRA contributions are made on a discretionary basis, which means the employer decides each year whether or not to make a SEP-IRA contribution for eligible employees.

SEP-IRA contributions in excess of certain limits must be corrected in accordance with regulatory requirements, in order to avoid penalties. The requirements vary depending on the type of excess contribution. Employers who make excess SEP-IRA contributions should consult with their SEP-IRA providers or a professional regarding corrective measures.

Employees are not permitted to make contributions but they can manage employer contributions.

Employee salary reduction contributions cannot be made under a SEP-IRA.

SEP-IRA Withdrawals.

A SEP-IRA allows the owners the right to withdraw the money immediately, subject to taxes and early withdrawal penalties. Withdrawals from a SEP-IRA are taxed similar to an IRA, with participants paying ordinary income taxes plus a 10% penalty if distributions are taken before age 59 1/2.

While loans are not permitted from a SEP-IRA, the account owner may make a qualified 60-day withdrawal and rollover once each year without incurring taxation or interest charges.

There is a penalty of 50% if you start the required Minimum Distribution withdraws after age 701/2, or take less than the required amount. You have similar rules to other established qualified retirement accounts.

Accounting and tracking for a SEP-IRA is very important.

Since the SEP-IRA doesn’t have a plan administrator, you’re expected to know when you take your Roth IRA distributions the cost basis of the contributions, conversions, and earnings. Most brokerage systems and mutual funds appeared to be limited in this field. If you are not blessed with excellent record keeping ability then I would use a money manager. Select one that has the ability to track and account for every penny and any account entry. This service should be provided by a high level of software.

Rules on SEP-IRA Tax Deadline.

A small business owner or sole proprietor have until April 15, or until their extension deadline, to make their SEP-IRA contribution if they want a prior year tax deduction.

You can contribute to a SEP-IRA for a specific tax year starting on January 1st of that year and the contribution deadline is your tax return filing date.

Cost for a SEP-IRA Plan.

The cost for an SEP-IRA is far lower than a tradition company sponsored retirement account. SEP-IRA costs can swing from $0 to about $50 yearly per account. There can be many hidden fees in retirement accounts, and it appears that the hidden fees are a defining factor in overall cost. Most firms that charge an annual fee, often are the companies that have larger and multiple hidden fees.

The cost of investment services, and their many associated fees, including but not limited to trading cost, yearly maintenance, termination, and transferring fees should be reviewed. A good trading service with a true flat fee per trade, plus few if any additional fees, is about $8 per trade.

The Cost Advantages using Money Managers in a SEP-IRA.

With a money manager you could have the management fees paid outside the SEP-IRA, allowing for more of the sheltered retirement account to grow tax free. These options are not available for Mutual Funds, commission brokers or Exchange Traded Funds (ETF). If the management fees are charged outside of the SEP-IRA, then those fees could become a tax deductible expense. The benefits of more tax free dollars working for you while your receive a substantial tax deduction makes working with a money manager often more attractive.

Success with a SEP-IRA Plan is Achieved with Planning.

My experience has enlightened that over time a well maintained and properly invested retirement account can often become an investor’s single most valuable financial asset. For your future, be diligent and well prepared, or hire a seasoned professional with top money management skills, so you too can enjoy the good life in your golden years.

Have a wonderful retirement.

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