- In setting up a simplified employee pension plan, the employer normally fills out IRS Form 5305-SEP. The form does not have to be filed with the IRS, but a copy of it along with all other information used to set up the plan must be given to the employees. The SEP must be set up for all eligible employees to be considered for tax deferred status.
- Once the plan has been started, all employees participated in the plan are fully vested. This means that there is no waiting period, and all funds as they go into their accounts are 100 percent the property of the employees. The funds are tax deferred until the time of withdrawal. The employer will deposit the contribution payments into the employee accounts at whatever set rate they have established, and the accounts are controlled by the individual employees.
- Since they are retirement plans, the government discourages withdrawal of the funds until the age of 59 1/2. They do this by adding a 10 percent penalty to any early withdrawal. All withdraws, whether early or after retirement, will also require the payment of federal income tax.
