'SARSEP' is explained in detail and with examples in the Laws & Regulations edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
SARSEP is an acronym that means Salary Reduction Simplified Employee Pension Plan. The government offered this advantageous retirement vehicle to those small businesses which possessed fewer than 26 employees. With this SARSEP, employees receive their own SEP IRA account in their specific individual name. They and their employers can both make contributions to the accounts.
These accounts are interesting primarily because they were stopped in January of 1997. In 1996, Congress passed the Small Business Protection Act which eliminated the SARSEP accounts. They became replaced by Simple IRA plans on a going forward basis. Those SARSEPs that already existed have been grandfathered in to the system. They continue to function unchanged as before.
Employees may make contributions to their accounts by using pre tax reductions from their salaries. Employers also may contribute as they so desire. Their total is limited to the lesser amount of either $53,000 or 25% of the total salary of the employee. Employees are limited to an annual contribution amount of $18,000 (or $24,000 if they are 50 years or older).
Besides this, net profits limit the total amount of all contributions that can be made to the account. These may not be greater than 18.6% of the company’s net profits for 2016 per the SEP IRA self employed rules. All of this means that SARSEPs are SEP IRA collections held by an employer. The individual accounts of employees are governed by the IRS rules for SEP IRAs.
The IRS does allow transfers or rollovers to be made from SARSEPs. Employees can do these without incurring tax penalties by moving the money to another account that is also qualified. Both plans in question have to permit rollovers from other retirement savings vehicles. Individuals may also choose to move a part of the account value or the whole account balance in an SEP rollover.
Anyone who receives distributions before reaching the minimum retirement age of 59 ½ will be penalized with the 10% early withdrawal penalty. To avoid these problems by accident, direct rollovers make more sense than indirect rollovers. With an indirect rollover, there are requirements for withholding. Accidental early distributions still incur penalties if the rollover is not completed within 60 days.
SARSEP accounts are unusual retirement vehicles. They may hold precious metals and a variety of other non traditional investments within them. These include individual stocks and bonds, mutual funds, options, ETFs, CDs, real estate holdings, and physical precious metals bullion. This makes these SEPs more versatile than the traditional and other types of IRAs. They permit investment choices from regular IRAs as well as hard commodities and land. This makes SARSEPs one of the only ways to possess actual gold, silver, palladium, or platinum in a retirement account.
Per the IRS, legally these types of accounts can hold all of these different kinds of assets. The only exception to this ability comes down to the particular contract of the individual accounts. The SEP IRA custodian may not make all of these types of investments available to their account holders.
Also choices for such investments can be limited by the written employer account agreement. This is why it is critical to read these agreements and to talk with the account custodian before making investment choices. In the event that physical precious metals are not permitted by the custodian or employer, paper gold is still an option. This includes Gold ETFs or gold miner ETF shares, as well as gold mining company stocks.