Small Business Owners: You Might Still Have Time to Set Up 2014 SEP IRA

Tuesday, May 05, 2015

By Joe Cicchinelli, IRA Technical Expert
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It’s Small Business Week at The Slott Report with articles Tuesday, Wednesday and Friday dealing with the issues small business owners and their employees face and the questions they need answered.

If you’re a small business owner such as a sole proprietor, a partner of a partnership, or an owner of an S corporation, and you don’t have a retirement plan for your business, you should consider establishing a SEP (Simplified Employee Pension). A SEP allows you to make retirement contributions for yourself and for your employees without getting involved in the more complicated rules of qualified retirement plans such as 401(k)s or profit-sharing plans. Having a retirement plan can provide you with a significant source of income after you’ve stopped working.

Under a SEP, the contributions are deposited to a traditional IRA, generally called a SEP IRA, set up by you and each of your eligible employees (if any). Once employer contributions are in the SEP IRA, these funds are like other IRA funds, and the SEP IRA is owned and controlled by the employee. You don’t manage the money after it’s deposited in employees’ IRAs. There are lots of other advantages of a SEP including:

  • The contributions you make are fully tax deductible
  • Lots of flexibility on how much you contribute (i.e., you’re not locked into making a contribution each year)
  • Low administrative costs to establish and maintain the plan

A SEP IRA does not have the start-up and operating costs of a conventional retirement plan and allows for a contribution of up to the smaller of 25% of compensation or $52,000 for 2014 ($53,000 for 2015). If you’re self-employed (sole proprietor or partner), your compensation is generally the profit from your business with some adjustments. These adjustments can be found in IRS Publication 560, Retirement Plans for Small Business. Also, IRS Publication 4333, SEP Retirement Plans for Small Businesses, is another helpful resource.

Even though SEP contributions are made into what are generally considered traditional IRAs, the deadline for contributing to a SEP IRA for 2014 can be later than April 15, 2015. The deadline for contributing to a SEP IRA is actually your business’ tax-filing deadline, plus any extensions you have. So, if your small business has an extension to file its 2014 taxes, you can set up and make SEP contributions for 2014 up until October 15, 2015.
 

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