SEP PLANS HELP BUSINESS OWNERS BOOST RETIREMENT SAVINGS
Texas CPAs say SEP Plans Are a Great Way to Save for Retirement

DALLAS — If you’re self-employed and looking for a simple and efficient way to save for retirement, consider a SEP (Simplified Employee Pension) plan, suggests the Texas Society of Certified Public Accountants. SEPs are a great way to save for retirement, especially if you don’t have employees working for you.

Here’s why: If you set up and contribute to a SEP, the same percentage of compensation must be contributed for each eligible employee. If there are no employees, you’re free to establish a high contribution percentage. For 2006, that could mean setting aside up to $44,000, depending on your self-employment income. By comparison, without a SEP, the most you could contribute to a traditional IRA would be $4,000 ($5,000 if age 50 or older).

WHO QUALIFIES
Anyone with self-employment income can establish a SEP, even if already covered by a retirement plan at a full-time job. This includes sole proprietors, partners in a partnership for which a plan is established, and small business owners.

TAX BENEFITS
Contributions to SEPs are tax deductible and grow tax-deferred. Under rules applying to 2006, the maximum contribution to a SEP is $44,000. In addition to the tax deduction for your contribution, which lowers your tax bill, you benefit from the tax-deferred status of the investment earnings within your SEP. Those earnings continue to grow tax-deferred until withdrawn, generally at retirement, when your distributions are taxed as ordinary income.

SEPS ARE FLEXIBLE
A SEP does not require mandatory annual contributions, so in a year when business has been slow, you can contribute a lower percentage or none at all. And unlike traditional IRAs, you can continue to contribute to a SEP after you reach age 70½, as long as you still have earned income.

Another advantage of SEPs is the timing. You can establish and contribute to a SEP as late as the filing date, with extensions, for your tax return.

WITH EMPLOYEES COME ADDED REQUIREMENTS
If you hire employees, in any given year in which you make a contribution to your own SEP, you are required to contribute the same percentage to SEPs for all eligible employees. Eligible employees are those who (1) are at least 21 years old; (2) have worked for you for at least three of the previous five years; and (3) have earned at least $450 from your business in 2006.

Unlike many other retirement plans, SEP participants are immediately 100 percent vested and have full ownership rights to the funds you contribute on their behalf.

SEP DISTRIBUTIONS FOLLOW TRADITIONAL IRA RULES
For the purpose of distributions, SEPs follow the same rules as IRAs. You must begin taking distributions from your SEP when you reach age 70½. Withdrawing from a SEP before you reach age 59½ generally results in a 10 percent penalty, in addition to paying income tax on the withdrawn amount.

A CPA CAN HELP
A CPA can help you determine if a SEP is right for your business. Consult with a CPA for advice on opening and administering a SEP plan.

PERSONAL FINANCE INFORMATION
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ABOUT TSCPA
TSCPA (http://www.tscpa.org) is a nonprofit, voluntary, professional organization representing Texas CPAs. The society has 20 local chapters statewide and has 27,000 members, one of the largest in-state memberships of any state CPA society in the United States. TSCPA is committed to serving the public interest with programs that advance the highest standards of ethics and practice within the CPA profession.