Q:  Who can establish?

A:  Anyone (regardless of age) with self-employment (SE) income

 

Q:  Eligible employees?

A:  N/A. But, if contributions are made for self-employed, they must also be made for eligible employees.

 

Q:  Maximum Contributions Allowed?

A:  20% of net SE income after SE tax deduction up to a maximum contribution of $53,000. SARSEPS established before 1997 follow 401(k) contribution limit rules.

 

Q:  Penalties for Early Withdrawal (Before Age 59.5)?

A:  10% of distribution. (See reference IRS Exceptions to 10% Withdrawal Penalty Before Age 59 ½).

 

Q:  When Withdrawals Must Begin?

A:  By April 1 of the year following the year the account owner turns age 70 ½. Note: Contributions can still be made to the account after age 70 ½ if the individual has earned income.

 

Q:  Date to Establish Plan and Make Contributions?

A:  Return due date, including extensions, for the year the plan is to be effective.

 

Q:  Employer Contributions Required?

A:  No

 

Q: Borrowing Permitted?

A:  No

 

Q: Rollover Allowed?

A:  Yes

 

Q:  Penalty for Excess Contributions?

A:  6% excise tax for both self-employed individuals and employees if excess contribution (plus earnings) is not withdrawn by return due date (including extensions). Employers are subject to a 10% excise tax on nondeductible (excess) contributions, unless an exception applies.

 

Q: Any Advantages to Employer?

A: Quarlified plans, SEPs

  • Contributions are generally tax deductible by the contributor and tax deferred for the plan participants. Earnings on contributions are tax deferred until withdrawn.
  • Maximum contributions (SEPs) are generally greater than IRAs.
  • Deductible contributions allowed after age 70 ½.

SEPs

  • Easy to set up and maintain.
  • Allow plan participant to choose how funds are invested as opposed to plan administrator through employer.
  • Participant is always 100% vested in the plan.
  • No annual reporting requirements; easy to administer.
  • Do not require recurring contributions.

 

TIPs:

Please note:

  1. Plans can set less restrictive participation requirements, but no more restrictive ones. New employers that come into existence after October 1 may es[Type a quote from the document or the summary of an interesting point. You can position the text box anywhere in the document. Use the Text Box Tools tab to change the formatting of the pull quote text box.
  2. Establish a plan as soon as administratively possible.
  3. Employee and self-employed elective deferrals must be deposited as soon as reasonably possible, but no later than 30 days after the end of the month in which the amounts would otherwise have been payable to the employee in cash. A self-employed’s elective deferral must be deposited by January 30 of the following year (January 30, 2017 for 2016 amounts).
  4. Excess contribution penalties are cumulative each year until corrected. The penalty is reported on IRS Form 5330, Return of Exceise Taxes Related to Employee Benefit Plans.
  5. Includes self-employed ministers.
  6. Nondiscrimination rules may affect contributions/deferrals for certain employees.
  7. The Tax Code does not specify when the employer is required to deposit employee elective deferrals into the employee’s account. However, under ERISA regulations, employee elective deferrals must be contributed to the employee’s 401 (k) plan account as soon as reasonable can be segregated from the employer’s general assets, but not later than the 15th business day of the month immediately after the month in which the contributions either were withheld or received by the employer.