The Basics: A SAR-SEP provides an employer with a simplified method of establishing a retirement plan into which employees can direct their own pre-tax dollars. Participating employees agree to have their salary reduced (or to forego receipt of a bonus), and the employer contributes those funds to an IRA for the employee instead of into his or her paycheck.
The employee's salary deferrals are made directly to SEP-IRAs set up for each employee with a bank, insurance company or other qualified financial institution.
Contributions are not taxed currently to the employee, and earnings accumulate income tax-defeff ed.
A. Annual Deferral
Limits: The maximum annual elective deferra lis $9,500 for 1996.'
B. Qualifications For A SAR-SEP
1. At least 50% of eligible employees must elect
to defer compensation;
2. During the prior year the company must have employed 25 or fewer employees; and
3. Each "highly compensated" employee cannot defer more than 1.25 times the average deferral
percentage for all non-highly compensated employees who are eligible to participate.
C. Time Of Contribution: Employer contributions can be made until the due date (plus extensions) of the employer's tax return. Participant contributions must be made by December 31.
D. Vesting: Vesting must always be 100%.
E. Additional IRAs: Additional IRAs are permitted if the combination meets overall IRA limits.
F. Who May Participate: Any employee who is at least 21 years old and has performed "service" in at least three of the last five calendar years must be permitted to participate under the SEP unless his or her total compensation is less than $400' for the year.
G. Investment Of
Plan Assets: Plan assets can be invested in most equity products or debt
instruments but may not be invested in life insurance, "hard" assets or
collectibles (except for U.S. gold and silver coins). Participants
direct the funds contributed on their behalf
1. Indexed for inflation in future years.
This document was last modified on July 26, 1999
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