Long gone are the days of traditional pension plans. But there are still ways for employers to help employees secure a comfortable retirement with a simplified employee pension plan (SEP). SEPs are retirement plans designed for small business owners, sole proprietors, and those who are self-employed, allowing them to make contributions to an individual retirement account (IRA) for employees.
What Does a SEP Have to Offer?
For employers, one of the main benefits of a SEP is that they are easy to set up and maintain. In addition, SEPs allow employers to set aside more money each year than with an IRA. For employees, SEPs offer tax-deferred income at retirement, meaning that their contributions are not taxed until withdrawal – which can help employees maximize their retirement savings and reduce taxes.
Examples of SEPs
One example of a SEP is a Savings Incentive Match Plan for Employees (SIMPLE). This plan allows employers to make matching contributions to their employees’ IRAs up to a certain limit. Another example is a Profit-Sharing Plan, which allows employers to distribute up to 25% of their total employee compensation each year to employees’ IRAs.
Bottom Line
At the end of the day, a SEP can benefit both employers and employees alike. With a SEP, employers are able to provide a secure retirement plan for their employees while receiving tax deduction for contributions made. And for employees, a SEP provides tax deferred income, allowing them to maximize their retirement savings and reduce taxes.