Behind the Numbers of a SEP-IRA - By Adam Cmejla of Waddell & Reed

In the second part of our series, Adam Amejla of Waddell & Reed presents a piece about Behind the Numbers of a SEP-IRA

Please note: This is an article written by a resident of the USA and is intended only for that market. If you are a resident of another country, please seek advice from an appropriate source.

I took some time yesterday to talk a little bit about different types of retirement plans to set up for your business and which ones are most beneficial. I’d first like to talk about a SEP, or a Simplified Employee Pension. A SEP allows you to set up an IRA (a “SEP-IRA”) for yourself and each of your eligible employees. You contribute a uniform percentage of pay for each employee, although you don’t have to make contributions every year, offering you some flexibility when business conditions vary. For the newer small businesses and practices of Indianapolis, this is a great plan to get started with in the beginning.

For 2008, your contributions for each employee are limited to the lesser of 25% of pay or $46,000. Most employers, including those who are self-employed, can establish a SEP.

SEPs have low start-up and operating costs and can be established using an easy two-page form. The plan must cover any employee aged 21 or older who has worked for you for three of the last five years and who earns $500 or more.

Next time, we’ll talk about the SIMPLE IRA plan. Til next time…
Adam Cmejla is a financial planner located in Indianapolis, IN.  He can be reached via email at acmejla@wradvisors.comor (800) 878-4517.  Readers of the above post should not act based solely on the information provided.  Since the details of your situation are fact dependent, you should not proceed without first seeking appropriate advice from a tax professional, financial planner, lawyer or other professional. 

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