Simplified Employee Pension (SEP) Plans
A Simplified Employee Pension (SEP) Plan is a type of retirement plan that allows employers to make tax-deductible contributions to individual retirement accounts (IRAs) set up for their employees.
This plan is particularly beneficial for small businesses and self-employed individuals because it involves lower administrative costs and fewer compliance requirements compared to other retirement plans. Contributions made by the employer are flexible and can vary from year to year, making it easier for business owners to manage their funding obligations.
For the tax year 2023, the maximum contribution an employer can make to each employee’s SEP IRA is the lesser of 25% of the employee’s compensation or $66,000. This plan allows employees to defer taxes on contributions until withdrawal, promoting retirement savings.
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