What is a SEP IRA?

A simplified employment pension, or SEP, is a type of individual retirement account that can be established by an employer (or someone who is self-employed). The type of IRA enables employers to receive tax reductions on contributions made to the account, such as to employee plan contributions. SEP IRAs typically have higher annual contribution limits than regular IRAs, and do not lock businesses into annual contribution requirements – this is to account for years when a business is not running. Many employers set up SEP IRAs to make larger contributions to their own retirement than they would be able to with a traditional IRA. SEP IRAs are treated like regular IRAs in terms of investment options and tax benefits.