SEP-240pxSetting up and maintaining a SEP for your Maine-based business is probably easier than you think. The sooner you get started saving, the more secure your retirement will be, plus your business can gain tax advantages right away.

 SEP Basics

The SEP is a stripped-down retirement plan mainly intended for self-employed individuals and small corporate employers.

If you’re self-employed, you can make an annual deductible contribution of up to 20 percent of your income to a SEP account.

If you’re employed by an S or C corporation, the company must establish the SEP on your behalf. The corporation can then make a deductible contribution of up to 25 percent of your salary to your SEP account.

For 2014, the maximum possible contribution to any participant’s SEP account is $52,000 (up from $51,000 in 2013).

Advantages to SEPs:

You can establish a SEP at just about any brokerage firm or financial institution. After creating your SEP, let your CPA at Filler & Associates know about this new account. You can establish a SEP as late as the extended due date of the federal income tax return for the year the initial deductible contribution will be made.

If you are a sole proprietor, here’s an example. You extend your 2014 individual tax return as long as possible, to October 15, 2015. You have until that date to create your 2014 SEP and make the first contribution. You can then deduct that contribution on your 2015 return. Contributions for later years can also be deferred until the extended tax return due date. 

If you run your business as a calendar-year corporation, you can extend the 2014 corporate return to as late as September 15, 2015. The corporation has until that date to establish the SEP and make the initial contribution. The company can then deduct that amount on its 2014 Form 1120. Contributions for later years can also be deferred until the extended due date for the corporate return. At Filler & Associates, we can help you with these details.

If you have a large amount of self-employment income or salary, a SEP allows you to make generous annual deductible contributions to the account. However, you always have the flexibility to contribute less than the tax-law maximum, or nothing at all, if cash is tight in your small business.

Disadvantages of SEPs

You might be able to make larger annual deductible contributions to a personal retirement account with a different plan, depending on your age and income. Filler & Associates can assist you in deciding what makes the most sense for you and your small business.

If your business has employees, contributions, which are fully deductible to you, are usually required for those who have worked for you during at least three of the past five years (see right-hand box for exceptions). Also, all contributions to employee SEP accounts vest immediately, so an employee can quit at any time without losing any SEP money. That’s great for the employee. But if you have more than a few trusted staff members, you may want to consider a different retirement plan option. Again, here at Filler & Associates, we can help you decide what will work best.

Borrowing from a SEP account is prohibited, which could be a potential drawback. Under most other types of retirement plans, borrowing is allowed (with the exception of SIMPLE IRAs), assuming the plan document permits loans.


A SEP may be the best choice if you want maximum simplicity from a tax-favored retirement plan. Of course, that is assuming you don’t mind covering your employees. A SEP is your only choice if you want to make a deductible contribution for last year, even though no plan was actually in existence at the end of last year. Contact your CPA at Filler & Associates to learn more about SEPs or to hear about other retirement plans available to your Maine-based small business.