Simplified Employee Pension - SEP

What is a Simplified Empoyee Pension (SEP)?

A SEP, or simplified employee pension, is a special form of an IRA which is designed for small businesses to allow a high rate of tax deferred savings.  Under a SEP, each participant has an account set up to which the employer contributes to.  These contributions are not part of the employees' salary and are tax deferred until retirement. 

Contribution Limits of a Simplified Employee Pension Plan (SEP)

When you compare a SEP to a traditional IRA, the contribution limits are much greater.  SEPs allow up to 25% of your income as contribution up to a maximum of $45,000.  Another excellent benefit to the employee is in regard to the vesting schedule of these contributions.  If an employee decides to leave the employer, all of their SEP contributions vest immediately.  Therefore, you take everything with you.  Remember, with some qualified plans, such as a 401(k) or employee stock bonus plan, an employee may be required to remain with the company for a certain period of time before they are able to do what they please with the employee contributions.

Tim Ord
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