Updated: Jun 24, 2021
What’s an SEP, you ask?
→ SEP = Self-Employed Tax Pension plan
The SEP is a formal, written tax-deferred retirement savings plan adopted by an employer (both self-employed and small business owners).
It also allows your business to make tax-free contributions to an individual retirement account for each of your employees if you have them! SEPs are funded solely by the employer using TAX-DEDUCTIBLE dollars. Yes, you heard that right - your business can pay for your retirement!
In a nutshell, here’s how it works:
Employers can contribute up to 25% of each employee's annual compensation.
Self-employed persons can contribute up to 20% of their net self-employment earnings towards their own account.
Soooo why choose this route?
→ Unlike other retirement plans, SEP plans do not offer Roth or post-tax contributions.
Some of the benefits of a SEP:
💥 Can be funded as late as the due date of the tax return (with extensions) for a specific tax year
💥 Employer-only contributions fund the IRA even if employee contributes nothing
💥 This is typically less complicated and less expensive to maintain than other small business retirement plans
💥 Employees are always 100% vested
I could go on and on about SEP for a WHILE. But this is just the bite-sized version to get you started.
Want to know more? Let's chat!