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SEP IRAs

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PLEASE DO NOW…

In your notebooks, please answer

the following questions:

1.Compute: $120,000 x 25%

2.How does a self-employed

individual save for retirement?

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TODAY’S GOALS

• What is an SEP plan?

• Why establish an SEP plan?

• How do we contribute to an SEP plan?

• SEP distributions.

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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.

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DEFINITIONS TO KNOW

SEP (Simplified Employee Pension)

Rollover

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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.

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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.

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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

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PLAN LIMITS

As a comparison…

2013 401k SEP IRA$17,500 = Employee Contribution Limit

Employees do not contribute unless they are self-employed.

$51,000 =Total Employer/Employee Contribution Limit

25% or $51,000 – Contribution Limit for Employer or Self-employed Person (whichever one is smaller)

Compensation (Salary)

Cap

? ?

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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.

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A LOOK AHEAD…

Case Study #4

Traditional IRAs

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QUESTIONS???