SEP or SIMPLE
Making the Right Decision for Your Business
NY CS 727623510/12KP 374392010-PS-2474
Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.
© 2012 Morgan Stanley Smith Barney LLC. Member SIPC.
You work hard to maintain your business and
satisfy your clients — you also need to meet your
needs as well as the needs of your employees.
You and your employees need to know that
the hard work you perform will be rewarded.
One of the ways to see your hard work pay off
is by maintaining a retirement plan for your
business. There are many programs available
to employers. This brochure focuses on the two
IRA plan types — SEP (Simplified Employee
Pension) Plan and SIMPLE (Savings Incentive
Match Plan for Employees).
SEP or SIMPLE
Similarities
Who may establish?
Any Self-Employed Individual, Partnership, S Corporation,
Corporation, Tax Exempt Organization or a State or Local
Government Agency.
Who controls the Investments?
All accounts for a SEP or SIMPLE plan are funded with
self-directed IRA Accounts.
Are loans permitted?
No.
Applicable fees?
There is an annual maintenance fee for these accounts,
which does not include the fees you would pay on the
trades you make. Ask your Morgan Stanley Financial
Advisor or Private Wealth Advisor for information.
What is the difference?
This chart is not meant to be the sole document to describe
both types of employer-funded IRA plans, but it illustrates
some of the differences between these plans. The primary
difference is the method of funding. The SEP is funded
entirely by the business, whereas the SIMPLE is funded by
both the employee through salary deferrals and the business.
This basic difference is usually one of the main considerations
in deciding between a SEP and a SIMPLE plan.
It is recommended by Morgan Stanley that you consult
your tax advisor when making a decision regarding
the establishment of these plans or any other retirement
plan. Your Morgan Stanley Financial Advisor or Private
Wealth Advisor can provide you with the plan
documentation and disclosures of either the SEP plan,
the SIMPLE plan, or both for your review. The plan
documents contain all the necessary information to allow
you to establish a plan for your business.
Differences
The chart below illustrates some of the key differences between the SEP IRA and the SIMPLE IRA.
SEP IRA SIMPLE IRA
Establishment deadline
Date for filing tax return of plan sponsor, including extensions, for the year the contributions are made.
October 1st of the year for which contributions will be made. A new employer coming into existence after October 1 can establish a SIMPLE plan as soon as administratively feasible after employer comes into existence.
Employee eligibility Employees (including owner) who are 21 or older and have worked for three out of the immediately preceding five years, and will earn at least $550 in 2012.*
Employees (including owner) who received compensation of $5,000 or more in any two prior years and who are expected by the employer to receive $5,000 in compensation in the current year.
Employee salary reduction contributions
Not permitted. Lesser of 100% of compensation (after reduction for applicable taxes) or $11,500 for 2012.*
Employer contribution Discretionary each year. Same contribution formula for all eligible employees.
Required. Must match employee contributions up to 3% of compensation. May be reduced to not less than 1% in two of any five consecutive years or make nonelective contribution for all eligible employees of 2% of compensation.
Maximum potential contribution
$50,000 for 2012.* $23,000 for 2012.** Participants who are 50 or older may defer an additional catch-up contribution of $2,500 for 2012.
Can be combined with another employer-sponsored retirement program?
Employer may maintain any other plan in the same year within funding and coverage limits.
Employer may not maintain any other plan in the same year.
* Subject to cost of living increases.
** Subject to cost of living increases. Amount represents a maximum salary deferral contribution of $11,500 and an employer match of $11,500 (3% of $383,334).
SEP or SIMPLE
Similarities
Who may establish?
Any Self-Employed Individual, Partnership, S Corporation,
Corporation, Tax Exempt Organization or a State or Local
Government Agency.
Who controls the Investments?
All accounts for a SEP or SIMPLE plan are funded with
self-directed IRA Accounts.
Are loans permitted?
No.
Applicable fees?
There is an annual maintenance fee for these accounts,
which does not include the fees you would pay on the
trades you make. Ask your Morgan Stanley Financial
Advisor or Private Wealth Advisor for information.
What is the difference?
This chart is not meant to be the sole document to describe
both types of employer-funded IRA plans, but it illustrates
some of the differences between these plans. The primary
difference is the method of funding. The SEP is funded
entirely by the business, whereas the SIMPLE is funded by
both the employee through salary deferrals and the business.
This basic difference is usually one of the main considerations
in deciding between a SEP and a SIMPLE plan.
It is recommended by Morgan Stanley that you consult
your tax advisor when making a decision regarding
the establishment of these plans or any other retirement
plan. Your Morgan Stanley Financial Advisor or Private
Wealth Advisor can provide you with the plan
documentation and disclosures of either the SEP plan,
the SIMPLE plan, or both for your review. The plan
documents contain all the necessary information to allow
you to establish a plan for your business.
Differences
The chart below illustrates some of the key differences between the SEP IRA and the SIMPLE IRA.
SEP IRA SIMPLE IRA
Establishment deadline
Date for filing tax return of plan sponsor, including extensions, for the year the contributions are made.
October 1st of the year for which contributions will be made. A new employer coming into existence after October 1 can establish a SIMPLE plan as soon as administratively feasible after employer comes into existence.
Employee eligibility Employees (including owner) who are 21 or older and have worked for three out of the immediately preceding five years, and will earn at least $550 in 2012.*
Employees (including owner) who received compensation of $5,000 or more in any two prior years and who are expected by the employer to receive $5,000 in compensation in the current year.
Employee salary reduction contributions
Not permitted. Lesser of 100% of compensation (after reduction for applicable taxes) or $11,500 for 2012.*
Employer contribution Discretionary each year. Same contribution formula for all eligible employees.
Required. Must match employee contributions up to 3% of compensation. May be reduced to not less than 1% in two of any five consecutive years or make nonelective contribution for all eligible employees of 2% of compensation.
Maximum potential contribution
$50,000 for 2012.* $23,000 for 2012.** Participants who are 50 or older may defer an additional catch-up contribution of $2,500 for 2012.
Can be combined with another employer-sponsored retirement program?
Employer may maintain any other plan in the same year within funding and coverage limits.
Employer may not maintain any other plan in the same year.
* Subject to cost of living increases.
** Subject to cost of living increases. Amount represents a maximum salary deferral contribution of $11,500 and an employer match of $11,500 (3% of $383,334).
SEP or SIMPLE
Making the Right Decision for Your Business
NY CS 727623510/12KP 374392010-PS-2474
Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.
© 2012 Morgan Stanley Smith Barney LLC. Member SIPC.
You work hard to maintain your business and
satisfy your clients — you also need to meet your
needs as well as the needs of your employees.
You and your employees need to know that
the hard work you perform will be rewarded.
One of the ways to see your hard work pay off
is by maintaining a retirement plan for your
business. There are many programs available
to employers. This brochure focuses on the two
IRA plan types — SEP (Simplified Employee
Pension) Plan and SIMPLE (Savings Incentive
Match Plan for Employees).
SEP or SIMPLE
Making the Right Decision for Your Business
NY CS 727623510/12KP 374392010-PS-2474
Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.
© 2012 Morgan Stanley Smith Barney LLC. Member SIPC.
