SEP stands for "Simplified Employee Pension," and these plans only allow for employer contributions. As such, SEP plans allow much higher contribution amounts than most other retirement plans. Employers or sole proprietors may contribute up to 20% of compensation or $42,000 per employee--whichever is less. Except for the higher contribution limits, they have the same rules as the Traditional IRA.
- A minimum annual contribution is not required.
- The SEP may be used in conjunction with other types of
- All contributions grow tax deferred until withdrawn.
- You are 100% immediately vested.
- Withdrawals made before age 59½ are subject to
a 10% federal tax penalty.
- If you withdraw assets gradually, instead of as a lump
sum, your balance will continue to grow tax deferred.