SEP: Simplified Employee Pension – Small Employer retirement plan using an IRA as the funding/investment vehicle
Employer Contribution Limits
Employer contribution limit is the lesser of 25% of employee’s salary or $57,000 (this amount may be less for highly compensated employees).
The employer must contribute an equal percentage for the benefit of all eligible employees with immediate vesting; for example, if a business owner contributes 8% to his or her account, the employer must contribute 8% for all eligible employees, if using IRS Form 5305.
Employer contributions only; employee salary deferrals are not permitted (exception; SAR-SEP plan); SAR-SEP plans, established prior to January 1, 2997, permit employee salary deferrals
Employer contributions, which are determined on a year-to-year basis, are typically discretionary.
Participant must have been employed by the company during at least three of the last five preceding years
Employee must typically be age 21 or older (however, employer can set plan eligibility age at 18) and have received at least $600 in compensation
Loans from SEP IRAs are not permitted
Distributions are taxed as ordinary income, the same as IRA distributions
Less Flexibly than a profit sharing plan or 401(k) plan