Contribute to Retirement Savings with a SEP IRA

Small businesses can help workers increase their retirement savings by contributing a percentage of the employees’ earned income to a Simplified Employee Pension (SEP)1. Employers offering SEPs cannot provide other retirement plans, except another SEP. The SEP – unlike the SIMPLE IRA – does not allow employee contributions, but an option exists for eligible workers also to contribute to Individual Retirement Annuities (IRAs).

Why SEPs are Beneficial

For Employers:

• Simple to maintain, with limited recordkeeping
• Low cost
• Useful for attracting and retaining employees

For Employees:

• Immediate 100-percent vesting
• Employee ownership of the SEP, which is entirely funded by the employer
• Earnings are tax-deferred until withdrawal2 (usually at retirement)

Self-Employed Contributions

An SEP option exists for self-employed individuals and allows contribution amounts based on how the business is set up:

• Self-employed individuals with incorporated businesses can contribute up to 25 percent of his or her W-2 income, up to the IRS limit.
• Contributions for sole proprietors are based on 20 percent of adjusted earned income.