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SEP IRAs
Simplified Employee Pensions (SEPs) are easy for employers to set up and require little or no administrative cost. SEPs provide employers with immediate tax deductions and allow earnings to compound tax deferred until they are withdrawn.
Under a SEP IRA, employers contribute to an employee’s
traditional IRA. The contributions are made directly to an IRA
set up by or for each employee. SEP rules permit an employer
to make deductible contributions each year up to 25% of the
employee’s compensation, or $46,000 (as adjusted for inflation
for 2008), whichever is less.
There are no required contributions under a SEP, and the contribution percentage can vary from year to year; the employer determines the amount of any contribution annually. When a contribution is made, the employer must contribute to the SEP IRAs of all eligible employees.
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