What is a simplified employee pension (SEP)?
A simplified employee pension (SEP) plan is a tax-favored retirement plan that uses an individual retirement account as the funding account. It is very popular among sole proprietors and owners of incoporated businesses. It is sponsored by an employer for the benefit of employees. SEPs work much like traditional Individual Retirement Accounts (IRAs), in fact, a SEP is often called a SEP-IRA. You can contribute up to 15% of salary a year to a SEP and the money will grow tax-deferred inside the account until you begin making withdrawals, usually after you reach age 59 1/2. If the owner establishes a SEP for himself, he must also offer a plan to his employees and fund their plans with contributions of his own. For example, if the owner contributes 10 percent of his salary to his own plan, he must also contribute 10 percent of each worker s salary to their individual plans. For more tax information about SEPs, see IRS Publication 560, Retirement Plans for Small Business, and the SEP sectio
