A Simplified Employee Pension or SEP is a low cost way for small businesses to offer a retirement plan. Costs are usually less than a traditional plan and record keeping is much easier. Scott Reeves wrote an article on SEPs. I quote a few paragraphs:
"All contributions to an SEP account immediately vest at 100%. Employer contributions to an employee's SEP grow tax deferred. Employees pay no taxes on the interest, dividends or capital gains earned until they begin to withdraw money from the plan.
Contributions can continue right up to retirement, but employees must start withdrawing money at age 70 1/2. Withdrawals made before age 59 1/2, however, are subject to a 10% penalty.
In 2005, the maximum annual contribution is 25% of the worker's pay or $42,000, whichever is less."
"Contributions to an SEP are also tax deductible for the employer. The business pays no taxes on the earnings an SEP generates. The employer's contribution isn't considered compensation and is therefore excluded from taxable wages.
Each year, the employer decides whether to make an additional contribution to the SEP and, if so, how much the contribution will be.
The funds are managed by the financial institution handling the account, and the employer has no responsibility for running the fund. This keeps expenses low because there are no fees associated with a typical retirement fund. The financial institution holding the money will handle record keeping."
The whole article can be read at
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