Can you still set up a retirement plan for 2009 if you are a small business owner?

If you own a small business or are just an independent contractor, there may still be time to set up a retirement plan for 2009 before you file your taxes.

The main type of retirement plan that can still be set up is called a Simplified Employee Pension Plan. A SEP is a simplified employee pension plan. A SEP plan provides employers with a simplified method to make contributions toward their employees’ retirement and, if self-employed, their own retirement. Contributions are made directly to an Individual Retirement Account or Annuity (IRA) set up for each employee (a SEP-IRA). See Publication 560 for detailed SEP information for employers and employees.

A SEP is established by adopting a SEP agreement and having eligible employees establish SEP-IRAs. There are three basic steps in setting up a SEP, all of which must be satisfied. (source:

  • A formal written agreement must be executed. This written agreement may be satisfied by adopting an Internal Revenue Service (IRS) model SEP using Form 5305-SEP, Simplified Employee Pension – Individual Retirement Accounts Contribution Agreement. A prototype SEP that was approved by the IRS may also be used. Approved prototype SEPs are offered by banks, insurance companies, and other qualified financial institutions. Finally, an individually designed SEP may be adopted.
  • Each eligible employee must be given certain information about the SEP. If the SEP was established using the Form 5305-SEP, the information must include a copy of the Form 5305-SEP, its instructions, and the other information listed in the Form 5305-SEP instructions. If a prototype SEP or individually designed SEP was used, similar information must be provided.
  • A SEP-IRA must be set up for each eligible employee. SEP-IRAs can be set up with banks, insurance companies, or other qualified financial institutions. The SEP-IRA is owned and controlled by the employee and the employer sends the SEP contributions to the financial institution where the SEP-IRA is maintained.

How much can you normally put away to these types of plans?

Annual contributions an employer makes to an employee’s SEP-IRA cannot exceed the lesser of:

  1. 25% of compensation, or
  2. $49,000 for 2009 and 2010 (subject to annual cost-of-living adjustments for later years).

The limits in the preceding sentence apply in the aggregate to contributions an employer makes for its employees to all defined contribution plans, which includes SEPs. Only up to $245,000 in 2009 and 2010 (subject to annual cost-of-living adjustments for later years) of an employee’s compensation may be considered. Contributions must be made in cash. Property cannot be contributed. (source:

Due to the rules of SEP plans called the 3 of 5 rule, you may be able to legally discriminate against employees who are part time or have not worked for the business for a specific period of time.

Request a FREE ConsultationThere may be other options for you if you own a business or are self employed, but the SEP could be a low-cost administrative plan to set up if you are still looking to save money for 2009.

For more information, please visit oXYGen Financial.

Check out these articles for more information –

  • 529 Plans – Are They Right For You?
  • Save More For Retirement? – Think Again – 401(k) Limits
  • 9 financial tips for Generation Y
  • Top 10 Estate Planning Mistakes!
  • Interest Bearing Checking Account

  • Ted Jenkin, CFP
    ®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
    Co-CEO and Founder oXYGen Financial, Inc.

    Should you convert to a Roth IRA?5 Myths of IRA InvestingTop 4 401K Rollover Mistakes

    11680 Great Oaks Way, Suite 175 | Alpharetta, GA 30022
    Phone 1.800.355.9318 or 770.777.0427

    oXYGen Financial, Inc. co-CEO Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.

    TED JENKIN IS SECURITIES LICENSED THROUGH INVESTACORP, INC. A REGISTERED BROKER/DEALER MEMBER FINRA, SIPC. ADVISORY SERVICES OFFERED THROUGH INVESTACORP ADVISORY SERVICES, INC. A SEC REGISTERED INVESTMENT ADVISORY FIRM. Linked sites are strictly provided as a courtesy. Investacorp, Inc., and its affiliates, do not guarantee, approve nor endorse the information or products available at these sites nor do links indicate any association with or endorsement of the linked sites by Investacorp, Inc. and its affiliates.

    Facebook Twitter StumbleUpon Delicious Google Bookmarks Share/Bookmark

    Recommended Posts