Everyone should be thinking about retirement savings when you are earning income.  You may be familiar with the traditional and Roth Individual Retirement Account (IRA) options that are available, but where you aware that there are better options for those that are self-employed or part of small business partnership?  One such option is the Simplified Employee Pension Plan or SEP.  SEP plans provide for a simplified method for you to make contributions of up to 25% of each participants compensation to a retirement plan.  One of the best benefits is that it is a deductible expense for the business and it does not count towards current year earnings for the employees!


SEP plans can provide a significant source of income at retirement by allowing employers to set aside money in retirement accounts for themselves and their employees. A SEP does not have the start-up and operating costs of a conventional retirement plan and allows for a contribution of up to 25 percent of each employee’s pay or owner/partner net earnings.  For 2020, there is a contribution limit of $57,000 per employee, which is far better than the $7,000 limit for a traditional or Roth IRA!


The SEP-IRA is available to any size business.  It is easy to adopt for anyone Self-Employed or part of a small business partnership.  There are no IRS filing requirements for the employer / business.  SEP-IRA plans are easy to set up and generally have low administrative costs.  Many financial institutions offer SEP-IRA packages to help get your plan established.  We use T.Rowe Price for our own SEP-IRA plan and have been happy with their service so far.

Basic Rules

  • Contributions are paid by the business into an SEP-IRA plan
  • Contributions are based on a written allocation formula and applies to every eligible employee
  • Written contributions formula can be adjusted each year, which is a good plan option if cash flow is variable year over year.


Bob is a teacher that also runs his own side business doing construction work.  Regardless of whether he is participating in an employer sponsored retirement plan for his teaching job, all of his net profit from his construction business is eligible for contribution (up to the limits for the tax year) to a SEP-IRA plan established for his business.

More Information

A good starting point to learn more about SEP Retirement Plans is at the following IRS site:  https://www.irs.gov/pub/irs-pdf/p4333.pdf