A simplified employee pension (SEP) is established by an employer or a self-employed person. The employer is allowed a tax deduction for contributions to each eligible employee’s plan on a discretionary basis. Eligibility requirements for contributors include a minimum age of 21, worked for the employer in at least 3 of the last 5 years, and a $750 compensation minimum for 2023.
The SEP IRA allows employers to skip contributions during years when business is down. Contributions made by employers cannot exceed the lesser of 25% of an employee’s compensation or $66,000 in 2023. Withdrawals from SEP IRAs in retirement are taxed as ordinary income.
For more information, please click the IRS website on SEP accounts.