Q: I'm looking at different associate positions in my area, and noticed one ad stated stated salary, benefits, and SEP. What does the SEP stand for?
A: SEP stands for "Simplied Employee Pension" - it's usually called a SEP IRA, and it's an easy way for an employer to provide a "retirement" benefit for employees. Here's how it works: The employer establishes the SEP IRA. Each employee gets his or her own IRA into which the employer makes contributions. The employee keeps the IRA and can make his or her own contributions each year. The amount of the employer contributions is not limited, but the amount the employee can contribute is based on the limits for IRA's each year, and is also affected by the amount the employer puts in. The employee must also adhere to the other rules for IRA's, including those limiting distribution and regulating what kind of investments can be made.
It's easy for the employer, and a good benefit for the employee, who can take the IRA when he/she leaves the company. The employer can decide each year whether to contribute to the SEP IRA and how much to contribute. The employer's contribution is tax-deductible as a business expense.
The employer can't just contribute for special employees, but must let "eligible" employees participate. For more on eligibility requirements for employees, check with your financial advisor.
If you are an employee, this is a nice benefit. If you are considering setting up a SEP IRA for your practice, do make sure you're doing it legally and get the advice of an attorney and a financial advisor.
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