Common use of Questions and Answers Clause in Contracts

Questions and Answers. Q1 What is a Simplified Employee Pension, or SEP? A1 A SEP is a written arrangement (a plan) that allows an employer to make contributions toward your retirement. Contributions are made to a traditional individual retirement account/annuity (IRA). Your employer will provide you with a copy of the agreement containing participation rules and a description of how employer contributions may be made to your IRA. All amounts contributed to your IRA by your employer belong to you even after you stop working for that employer. Q2 Must my employer contribute to my IRA under the SEP? A2 No. An employer is not required to make SEP contributions. If a contribution is made, it must be allocated to all the eligible employees according to the SEP agreement. The Prototype SEP Plan specifies that the contribution for each eligible employee will be the same percentage of compensation (excluding compensation higher than a specified dollar limit that is subject to cost-of-living adjustments) for all employees. The compensation limit is: 2006 $220,000 2007 $225,000 2008 $230,000 2009 $245,000 2010 $245,000 2011 $245,000 2012 $250,000 2013 $255,000 2014 $260,000 2015 $265,000 2016 $265,000 2017 $270,000 2018 $275,000 2019 $280,000 2020 $285,000 Q3 How much may my employer contribute to my SEP IRA in any year? A3 Your employer will determine the amount to be contributed to your traditional IRA each year. However, the amount for any year is limited to the smaller of $40,000 or 25% of your compensation for that year. The $40,000 maximum SEP contribution limit is subject to cost-of-living adjustments. Compensation does not include any amount that is contributed by your employer to your traditional IRA under the SEP. Your employer is not required to make contributions every year or to maintain a particular level of contributions. See Question 5. The SEP contribution limit is: 2006 $44,000 2007 $45,000 2008 $46,000 2009 $49,000 2010 $49,000 2011 $49,000 2012 $50,000 2013 $51,000 2014 $52,000 2015 $53,000 2016 $53,000 2017 $54,000 2018 $55,000 2019 $56,000 2020 $57,000 Q4 How do I treat my employer's SEP contributions for my taxes? A4 Employer contributions to your SEP IRA are excluded from your income unless there are contributions in excess of the applicable limit. See Question 3. Employer contributions within these limits will not be included on your Form W-2. Q5 May I also contribute to my IRA if I am a participant in a SEP? A5 Yes. You may contribute the smaller of the annual regular IRA contribution limit or 100% or your compensation to an IRA. However, the amount you can deduct may be reduced or eliminated because, as a participant in a SEP, you are covered by an employer retirement plan. See Question 11. Q6 Are there any restrictions on the IRA I select to have my SEP contributions deposited? A6 Contributions must be made to either a Model traditional IRA executed on an IRS form or a master or prototype traditional IRA for which the IRS has issued a favorable opinion letter. Q7 What if I do not want to participate in a SEP? A7 If your employer does not require you to participate in a SEP as a condition of employment, and you elect not to participate, all other employees of your employer may be prohibited from participating. If one or more eligible employees do not participate and the employer fails to establish a SEP IRA for the remaining eligible employees, it could cause adverse tax consequences for the participating employees. Q8 Can I move funds from my SEP IRA to another traditional IRA? A8 Yes. You can withdraw or receive funds from your SEP IRA if within 60 days of receipt, you place those funds in the same or another traditional IRA or SEP IRA. This is called a "rollover" and can be done without penalty only once in any 1-year period. However, there are no restrictions on the number of times you may make "transfers" if you arrange to have these funds transferred between the trustees or the custodians so that you never have possession of the funds. Q9 Can I move my funds from my SEP IRA to another employer plan? A9 Yes. Beginning with distributions received in 2002, you may also roll over to a qualified plan (under section 401(a)), a qualified annuity, a 403(b) tax-sheltered annuity or custodial agreement, or an eligible 457(b) plan of a state or local government. Q10Are there any restrictions to rollovers from my IRA? A10Yes. You may not roll over to an employer plan (See Question 9) any basis in your IRA. Basis includes nondeductible IRA contributions, after-tax monies that were rolled into the IRA from an employer plan, or repayments of qualified reservist distributions. Q11What happens if I withdraw my employer's contribution from my IRA? A11You may withdraw your employer's contribution at any time, but any amount withdrawn is includible in your income unless rolled over. Also, if withdrawals occur before you reach age 59½, you may be subject to an additional tax on early withdrawal. Q12Are there any restrictions in withdrawing the funds in my SEP IRA? A12You may withdraw the funds in your IRA at any time. However, a withdrawal from a certificate of deposit prior to maturity may result in a forfeiture of principal or interest. These penalties, as well as any fees which may be charged, are set forth in the IRA disclosure statement you received when you opened your account and/or any specific disclosure accompanying your certificate of deposit (including rules of class) or other investment. An IRA with another institution may have different terms concerning transfers, withdrawals, rates of return, etc. It is possible that the terms offered at another institution may be more advantageous. Q13May I participate in a SEP even though I am covered by another plan? A13An employer may adopt this Prototype SEP in conjunction with any qualified plan, including a defined benefit plan. Also, if your employer maintained in the past a defined benefit plan, which is now terminated the employer may adopt this Prototype SEP. Q14What happens if too much is contributed to my SEP IRA in one year? A14Contributions exceeding the yearly limitations may be withdrawn without penalty by the due date (plus extensions) for filing your tax return (normally April 15), but are includible in your gross income. Excess contributions left in your SEP IRA account after that time may have adverse tax consequences. Withdrawals of those contributions may be taxed as premature withdrawals. Q15Is my employer required to provide me with information about SEP IRAs and the SEP agreement? A15Yes. Your employer must provide you with a copy of the executed SEP Plan agreement with Adoption Agreement and a yearly statement showing any SEP contributions to your traditional IRA. Q16Is the financial institution where my traditional IRA is established required to provide me with information? A16Yes. It must provide you with a disclosure statement that contains the following information in plain, nontechnical language.