Simplified Employee Pension Plan (SEP)

Simplified Employee Pension (SEP) plans are an excellent way to help your employees get a head start on retirement savings. Eligible employees establish SEP IRAs to which tax-deductible contributions are made solely by the employer.

Plan Eligibility

Sole proprietorships, partnerships, limited liability corporations (LLCs), or incorporated businesses, including subchapter S corporations, can establish a SEP plan.
All eligible employees must be allowed to participate in the SEP. An eligible employee is any employee who:
- is at least 21 years old
- has performed any service for the employer in up to 3 of the immediately preceding 5 years
Union employees and non-resident aliens who have no U.S source of income may generally be excluded from coverage.

Note: You can establish less restrictive eligibility requirements than the ones listed above, but not more restrictive ones.

Vesting

Vesting is the participant's ownership in the value of his/her retirement account or benefit. Vesting is always 100% immediate upon becoming a participant in the plan and applies to all participants.

Tax Advantages

Employer contributions are tax deductible for the employer -- up to 25% of all participants' compensation.
Tax-deferred growth -- any investment earnings grow tax-deferred until withdrawn.

Plan Deadline

The deadline to open and contribute to a SEP Plan is the business's tax-filing deadline (including extensions).

Contribution Flexibility

No annual contribution is required

Contribution percentage can vary each year, from 0-25% of compensation, up to a maximum dollar amount per participant for each year.
The employer must make all SEP contributions, and the same percentage of compensation, generally, (unless integrated with Social Security if allowed by your plan document) must be contributed for all eligible employees including the owner-employee.

Investment Options

Key Advantages

Plan simplicity

No complicated forms to complete.
No annual reports for the employer to file with the IRS.

Attractive benefits for employees

Offering a SEP IRA plan can make it easier to attract and retain valuable employees.
A SEP IRA plan can assist in providing retirement income for eligible employees.
Traditional IRA contributions can also be made to a SEP IRA

Early Withdrawal Penalty

Generally, a 10% tax penalty is applicable to distributions for participants under age 59 1/2. Participants will have to pay federal income tax on the distributions, as well.

Reporting and Disclosure Requirements

No IRS forms are required to be filed by the employer. Each employee should be provided with a completed copy of the IRS form 5305-SEP and the instructions.

For detailed information on qualified retirement plans, please contact your State Farm agent.

*In a tax qualified retirement plan, federal income tax deferral treatment is provided by the plan. If an annuity is used to fund the retirement plan, no additional tax deferral treatment is provided by the annuity. Contact your attorney or tax advisor for more complete information.

Life insurance and annuities issued by:
State Farm Life Insurance Company
(Not Licensed in New York or Wisconsin)
State Farm Life and Accident Assurance Company
(Licensed in New York and Wisconsin)
Home Office, Bloomington, Illinois

State Farm VP Management Corp. Risk/Important Disclosures. State Farm Mutual Funds Prospectus. The State Farm College Savings Plan Enrollment Handbook (PDF 445 KB) .

It is important to note that there is market risk involved when investing in mutual funds, including possible loss of principal.

AP2009/03/2392