What Are Simplified Employee Pension Plans?
Simplified Employee Pension Plans (SEP), are retirement plans designed for small-business owners and slef-employed individuals. Employers can make tax-deductible contributions on behalf of their employees because the plan is based on an IRA. That means, if you are eligible, you will not pay taxes on the contribution but you will pay them on the distribution you receive from the SEP account.
If an employer has one or more employees they are elibible to open an SEP plan. An amployer can do this even if they are a self-empoyed individual and the only employee. However, an individual employee cannot open her own account. For more information regarding SEP plans, you can browse www.investopedia.com.
Overfunded Life Insurance Contracts
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.