Consider a Simplified Employee Pension plan in 2023

— All taxable businesses, including small business owners with limited number of employees and independent contractors

— Government entities

— Tax-exempt organizations

Participant Eligibility Restrictions:

Employees who performed service for the employer in three of the past five years and are age 21 or older may be eligible if they earn $750 (indexed) in the plan year. Previously listed restrictions may be reduced or full eligibility immediately may be selected. Certain employees may be excluded, including non-resident aliens, acquired employees, and union employees.

Required Employer Contribution:

None, unless the plan is Top Heavy (see Top Heavy Plans below).

Maximum Deductible Contribution:

The lesser of: 25% of employee’s compensation (self-employed Schedule C filer uses modified net business income and a reduced contribution rate of 20%) or $66,000. Compensation is capped at $330,000. Contributions must generally be the same percentage of compensation or same dollar amount for all eligible employees (including the employer).

Maximum Employee Deferral:

No salary deferrals allowed, unless the plan is a SAR/SEP established before December 31, 1996.

Vesting:

100% immediate

Advantages:

— May be established and funded by tax-filing deadline plus extension

— Minimal paperwork and administrative expenses

— No annual 5500 filings

— Employer contributions are discretionary each year and tax-deductible for the business

— Each employee (including the employer) has his or her own SEP IRA and can direct investments or select an advisory program independently of other participants.

— $6,500 ($7,500 if age 50 or older) traditional IRA contribution for 2023 can be deposited into a SEP IRA — No formal termination required

— Withdrawals may occur at any point; however, the distribution is taxable as ordinary income and a 10% penalty may apply before age 59½

Top Heavy Plans:

For the years a plan is Top Heavy (total value of key employees’ accounts is >60% of value of all accounts and key employees receive a contribution of 3% or more), employers must make a minimum contribution of 3% of compensation to non-key employees.*

* Key employees include 1) a 5% or greater owner of the company, 2) a 1% owner having annual compensation >$150,000, or 3) an officer with compensation >$215,000. Stifel does not provide tax advice. You should consult with your professional tax advisor regarding your particular situation.

Article provided by David Hood, Jr., AAMS™, a Financial Advisor with Stifel, Nicolaus & Company, Incorporated, member SIPC and New York Stock Exchange, who can be contacted in the Owosso office at (989) 494-5474.