In relation to retirement plans, what is a SEP?

SEP is an abbreviation for a simplified employee pension plan. Simplified Employee Pension plans (SEPs) can provide a significant source of income at retirement by allowing employers to set aside money in retirement accounts for themselves and their employees. Under a SEP, an employer contributes directly to traditional individual retirement accounts (SEP-IRAs) for all employees (including the employer). A SEP does not have the start-up and operating costs of a conventional retirement plan and allows for a contribution of up to 25 percent of each employee’s pay. Sole proprietors, partnerships, and corporations, including S corporations, can set up SEPs. Your employer's SEP contributions are excluded from your pay and not included on your W-2 form.

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