What Are Key Features Of Simplified Employer Pension Plans (SEP) Plans?
As I mentioned in an earlier post, a Simplified Employee Pension Plan, is a retirement plan specifically designed for small-business owners and self-employed individuals. These plans work even if you are the only employee, as the rules are the same.
Key features include:
- Tax-deductible contributions are allowed up to 25 percent of the first $41,000 of your income.
- All investment earnings can grow tax-deferred until withdrawn.
- Employers must contribute the same percentage of contribution to every employee who participates in the SEP plan.
- You can choose from a wide variety of investments for your SEP plan, including mutual funds, stocks, bonds, and CDs.
- There are no complicated forms to fill out when you open a SEP and no annual reports that need to be filed with the IRS.
To “overfund” an indexed universal life insurance policy means to maximize the policy’s cash value growth potential and minimize its net insurance costs over time. When the maximum premium is paid into the policy, cash values grow faster which leverages the net amount of life insurance at risk. The net amount of life insurance at risk is the difference between the actual face amount of the policy less the current cash value, see diagram below. With all universal life policies, insurance costs are calculated based on the amount of life insurance at risk at any given point in time. As the net amount of insurance at risk decreases, the costs of insurance decrease and a higher portion of the premium payment can be directed to the indexed account. By overfunding the policy, cash values can leverage the cost of insurance therefore maximizing the cash value growth potential.