Simplified Employee Pension (SEP) Plan

Merrill Lynch Wealth Management's simplified employee pension (SEP) plan is a flexible, cost-effective retirement plan for self-employed individuals and small business owners that allows employers to make discretionary, tax-deductible contributions to traditional individual retirement accounts for all eligible employees.

WHY SHOULD YOU USE A SEP?

• A SEP can help employees accumulate tax-deferred retirement assets, making it an effective tool for attracting and retaining employees.
• Consider a SEP if your business is new or has variable profits, if you would like to offer a retirement plan that is inexpensive to establish and maintain and if you want flexibility in making annual employer contributions.

WHAT ARE THE BENEFITS OF A SEP?

For employers:

Reduce fees and paperwork

• There are no start-up or annual program administration fees.
• Internal Revenue Service (IRS) Form 5500 filing is not required.
• A summary plan description is not required.

Potential tax advantages

• Employer contributions are generally tax-deductible as a business expense. Speak to your tax advisor for more information.
• If eligible, you may take a nonrefundable income tax credit for 50% of the first $1,000 of administrative and retirement education expenses you may incur in each of the plan’s first three years. Speak to your tax advisor for more information.

Take advantage of contribution flexibility

• You can change the amount of your contributions each year, as long as contributions bear a uniform relationship to each employee’s compensation.
• You can base your contributions on profitability, choosing to contribute only during profitable years.
• Contributions can be integrated with Social Security.

Limit liability

• Your liability is limited because employees exercise control over the investment direction and distribution of assets in their individual SEP accounts.

For participants:

Gain tax advantages

• Contributions have the potential of growing tax-deferred until withdrawal, giving participants the potential to significantly increase their retirement savings.

Benefit from investment choices and flexibility

• Participants have complete control over their assets and may invest in a variety of investment options.
• All contributions are 100% vested immediately.

WHO CAN ESTABLISH A SEP?

• A SEP can be adopted by any of the following:
• —   Self-employed sole proprietors
• —   Small businesses
• —   Partnerships
• —   Nonprofit organizations
• —   S and C corporations

WHO CAN PARTICIPATE IN A SEP?

• Employees age 21 or older who have earned at least $550 (indexed for inflation by the IRS) during the year and who have performed services for you in at least three of the past five years are eligible to participate.
• You may adopt less restrictive eligibility requirements.

WHAT ARE THE SEP CONTRIBUTION GUIDELINES?

• Each year, you may contribute the lesser of 25% of compensation or $49,000 for yourself and each eligible employee, with a $245,000 compensation cap per employee.* You can establish a SEP and make employer contributions up to your tax-filing deadline, including extensions.
• For any particular year, the same contribution percentage rate must be used for all participants, including the employer, unless your plan uses an allocation formula with permitted disparity.
• You may calculate contributions to each participant’s SEP using permitted disparity, often referred to as integrated with Social Security. Employers who calculate contributions using permitted disparity may be able to adjust SEP contributions for an employee based on the employee’s compensation level so that employees compensated on a higher level receive a higher percentage contribution.
• If you are self-employed, you can make contributions in any year in which self-employment income is reported.
• Rollover contributions are permitted.

HOW ARE THE DISTRIBUTIONS TAKEN?

• Distributions from a SEP are subject to ordinary income tax.
• Distributions taken prior to age 59½ are subject to an additional 10% early withdrawal penalty, unless certain exceptions apply.
• Required minimum distributions must begin after the participant reaches age 70½.

WHAT TIME-SAVING SERVICES ARE AVAILABLE?

Merrill Lynch provides multiple time-saving services that allow you to focus more on your business and less on administrative tasks.

• The Merrill Lynch E-Contribs for Small Business Retirement Accounts^TM service provides an easy and convenient web-based solution for making employer contributions to retirement plan accounts at no additional charge.
• The Automated Investment Program service provides a systematic way to invest in mutual funds on a schedule based on your needs.
• Managed money solutions offer discretionary, fee-based investment services.