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Simplified employee pensions, or SEPs, are essentially individual retirement accounts (or IRAs) and are the simplest and least expensive way for a small business to establish a pension plan for its owners and employees. All contributions made under a SEP are employer contributions. An employee cannot defer a portion of his or her salary and contribute it to a SEP-IRA.

People who should consider setting up a SEP include:

those regularly employed by a company who also work for themselves as independent contractors,
sole proprietors who have no employees,
business owners that will not know the business’s financial condition until tax time (SEPs can be established after the employer’s tax year has ended and contribution amounts can be established when profits are known), and those (individuals or companies) providing financial services who might want to use a SEP to provide clients with combined plan.