Legal Definitions - Simplified Employee Pension plan

A Simplified Employee Pension plan, also known as SEP-IRA, is a type of Individual Retirement Account (IRA) that offers more flexibility to employers than a traditional IRA.

With a SEP-IRA, employers are not required to make annual contributions like a Simple IRA. Instead, they have the option to limit contributions when business is slow. Only employers can establish and contribute to a SEP-IRA, and they must do so at the same rate for all employees.

SEP-IRA contributions are tax-deductible for employers, and the plan has low maintenance costs. The annual contribution limit for a SEP-IRA is much higher than other IRAs, with employers being able to contribute up to the lesser of 25% of the employee's wages or $58,000 as of 2021.

For example, if an employer has ten employees and decides to contribute 10% of their salaries to their SEP-IRA accounts, they must contribute the same percentage to all employees. If an employee earns $50,000 per year, the employer can contribute up to $12,500 to their SEP-IRA account.

In summary, a SEP-IRA is a retirement savings plan that offers more flexibility to employers than a traditional IRA. Employers can contribute up to 25% of their employee's wages or $58,000, whichever is less, and the contributions are tax-deductible.