What Is a SEP IRA and How Does It Work?
A Simplified Employee Pension, or SEP IRA, is a tax-deferred retirement plan available to small businesses of any size. Like the SIMPLE IRA, a SEP is very easy to setup using a prototype plan from a bank or financial institution and completing a single IRS form.
SEPs are funded entirely by the employer. Annual contributions can vary depending on business cash flow and must be made by the time you file your federal income tax return.
If you set up a SEP IRA, all employees must be included and all must receive equal contributions as a percentage of salary. Because of this requirement, SEPs are often used by sole proprietors or businesses with just one or two key employees.