A Simplified Employee Pension (SEP) IRA is an IRA-based employer plan. A business owner who decides to adopt a SEP for their business will be solely responsible for funding the plan.
- Generally, any employee who is at least 21, earns at least $550 per year, and has worked three out of the five preceding years for the employer is eligible to participate in the employer's SEP Plan for the current year.
- Any employer may establish an SEP plan. This includes sole proprietorships, partnerships, corporations and non-profit organizations.
- An attractive feature of the SEP plan is that employees may use the same account to which SEP contributions are made for their regular traditional IRA contributions.
- Contributions to SEP IRAs are immediately 100% vested, which means employees may take the contributions at any time, regardless of whether or not the employee still works for the employer's business.
- Because the funding vehicle for a SEP is a traditional IRA, the distribution rules of a traditional IRA also apply to SEP assets.