Simplified Employee Pension (SEP)
Candlefocus EditorSEP IRAs are an easy and cost effective way to save for retirement. They can accept much higher contribution limits than a traditional IRA and 401(k). The contribution percentage limit is generally 25% of the employee’s annual pay up to $58,000, depending on age and other factors. It’s important to note that while the employer is responsible for contributing the same percentage to all eligible employees, they aren’t responsible for matching employee contributions.
Unlike 401(k)s, SEP IRAs are much simpler to administer, requiring less paperwork and compliance with fewer regulations. SEP IRAs are extremely flexible and provide the options to make contributions for yourself, or for your employees. This provides an incentive for employers to invest in their employee’s retirement security.
SEP IRAs are exempt from payroll taxes for employers, making it easier for employers to budget for retirement savings. Employers may also deduct the costs of their contributions from their taxable income.
In addition, employees are able to take advantage of the tax deferred growth of the SEP IRA, which allows their investments to grow without paying taxes on gains each year. This can lead to a larger retirement nest egg over the course of their career.
Overall, a Simplified Employee Pension (SEP) is a great way for employers and the self-employed to manage their retirement savings. With its low administrative costs, flexibility, and generous contributions limits, they are a great option for business owners looking to provide a secure retirement plan for themselves, and their employees.