SEP IRA - Disadvantages

Filed in archive Uncategorized on December 9, 2011

© The Laird of Oldham

A Simplified Employee Pension (SEP IRA) is one of the simplest retirement plans to establish. A SEP IRA does have many advantages, but there are disadvantages to a SEP IRA too - both to the employer and the employee. The following is a brief on the major disadvantages of a SEP IRA. One of the main reasons that employers do not want to establish SEP IRA plans is due to the fact that all employees must be included, irrespective of whether employed on a full time or part time basis. An employer needs to leave the money in the account regardless of the time period that the employee has been with the company. Usually based on a sliding scale, an employee is entitled to a greater amount on his/her employment funds after working for the company over a longer time period. Employers thus use retirement plans such as SEP IRA as a method of retaining employees, but lose this benefit while increasing new-employee administration and training costs in SEP IRA plans. A major grudge against an SEP IRA plan is that unlike a traditional 401(k) plan used by larger corporations, an employee on a SEP IRA plan cannot contribute to his own retirement account. Furthermore, employees on a SEP IRA plan cannot even take out loans against the monies in the plan.