SEP Simplified Employee Pension


What Is a SEP Simplified Employee Pension (SEP)?

A simplified employee pension (SEP or SEP IRA) is a retirement plan that an employer or self-employed individuals can establish. The employer is allowed a tax deduction for contributions made to the SEP plan and makes contributions to each eligible employee’s SEP IRA on a discretionary basis.


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Under the new Setting Every Community Up for Retirement Enhancement (SECURE) legislation, which was enacted on December 20, 2020,2 small employers will get a tax credit to offset the costs of starting a 401(k) plan or Savings Incentive Match Plan for Employees (SIMPLE) IRA plan with auto-enrollment on top of the start-up credit they already receive.3

SEP IRAs often have higher annual contribution limits than standard IRAs.4 Fundamentally, a SEP IRA can be considered a traditional IRA with the ability to receive employer contributions. One major benefit it offers employees is that employer contributions are vested immediately.

Employee contribution limits

  • Employees may be able to make traditional IRA contributions to the SEP-IRA of up to $6,000 ($7,000 for employees age 50 or older) for the 2020 tax year.

  • This amount is the total contribution allowed by the IRS that employees can make to all their IRAs (SEP, traditional, or Roth) each year.

California Business Benefits has a business alliance with a very reputable RIA advisory firm, The Financial Management Network, Inc. All securities transactions are carried out through FMN.