9.7.2 Simplified Employee Pension Plans (SEP)
Because setting up retirement plans is expensive for small business owners and many were therefore not offering such benefits, Simplified Employee Pension Plans (SEP) were created so employees would be able to begin saving for retirement with pretax dollars. SEPs can provide a significant source of income at retirement by allowing employers to set aside money in retirement accounts for themselves and their employees. A SEP does not have the start-up and operating costs of a conventional retirement plan. Under a SEP, an employer contributes directly to the traditional individual retirement accounts (SEP-IRAs) for all employees (including the employer).
A main difference between SEPs and IRAs is that you can contribute a much larger amount to an SEP within one year. The maximum amount that can be contributed to an employee's SEP is 25% of the employee's annual compensation.
For more information on SEP retirement plans for small business, go to: http://www.dol.gov/ebsa/publications/SEPPlans.html.
