An SEP stands for Simplified Employee Pension, which is a type of retirement plan that allows small business owners, including self-employed individuals, to make tax-deductible contributions on behalf of themselves and their employees. An SEP is a popular retirement savings option for small businesses due to its simplicity and flexibility. How SEP Plans Work An SEP plan is established by the employer and allows contributions to be made on behalf of eligible employees, including the business owner. Contributions are made on a tax-deferred basis, which means they are not subject to income tax when they are contributed to the plan, and the investment earnings grow tax-deferred until withdrawal during retirement. The employer makes contributions to the SEP plan and determines the contribution amount, which must be the same percentage of compensation for all eligible employees, including the business owner. The contribution limits for SEP plans are relatively high, allowing for significant retirement savings. For 2023, the maximum contribution limit is the lesser of 25% of the employee’s compensation or $61,000. One of the key advantages of SEP plans is their simplicity. They are easy to