SEP IRA Plan

SEP’s are ideal if you’re a self-employed individual or small business owner who wants a simple, easy-to-administer plan that allows you to make annual discretionary tax-deductible contributions to a retirement plan. Employers are permitted to make tax-deductible contributions of 25% of compensation paid during the year to the participants under the plan. The overall maximum contribution per eligible employee is 100% of compensation, not to exceed $49,000 based on the first $245,000 of compensation in 2009.

SEP’s are also ideal for freelancers, independent contractors, part-timers and individuals who earn any self-employment income from activities outside of their full-time jobs.

Key Benefits:

Annual contribution percentages may vary; contributions may even be skipped altogether
Simple to establish and maintain; no government reporting
Permits Social Security integration

Possible Drawbacks:

In general, the same percentage of compensation must be contributed for all participants
Involves top-heavy testing
All contributions are 100% immediately vested
Generally difficult to exclude part-timers from eligibility
Loans are not permitted