December 19, 2023

SEP Retirement Plans Explained: Maximizing Benefits for Small Businesses and Self-Employed

Are you a business owner or an employee looking for an effective retirement plan? The Simplified Employee Pension (SEP) plan might be just what you need. This article will dive into the details of SEP plans, showcasing why they are a popular choice for various businesses.

What is a SEP Plan?

A SEP plan is a workplace retirement plan tailored for employers, including sole proprietors, partnerships, LLCs, corporations, non-profit organizations, and government entities. It’s designed to provide a straightforward method for employers to contribute to their own and their employees’ retirement savings.

Key Features of SEP Plans

  1. Flexible Contributions:  Employers make all contributions, which are tax-deductible and grow tax-deferred until distribution. Remarkably, there’s no set requirement for annual contributions; employers can decide each year how much to contribute, from zero to 25% of compensation.
  2. Contribution Limits:  The contribution limit is the lesser of 25% of compensation or specific annual caps ($66,000 in 2023 and $69,000 in 2024). The compensation basis for SEP contributions also has a cap ($330,000 in 2023 and $345,000 in 2024).
  3. Eligibility Criteria:  Eligibility can vary. Common requirements include being at least 21 years old, having worked for the employer during three of the past five years, and earning at least $750 in the current year. Employers can exclude certain groups under specific conditions but have the flexibility to reduce or eliminate these requirements.
  4. Immediate Vesting:  In a SEP plan, vesting is immediate. This means that employees have full ownership of the contributions as soon as they’re made.
  5. Deadlines:  Employers must establish and fund the SEP IRA by their tax-filing deadline, including extensions.
  6. Cost-Effective:  SEP plans are an economical option for workplace retirement plans, not requiring special IRS filings like form 5500.

Who Benefits from SEP Plans?

SEP plans are particularly advantageous for small businesses and self-employed individuals due to their low cost and administrative simplicity. They also offer flexibility for employers who may not be able to commit to consistent annual contributions.

How to Set Up a SEP Plan

Setting up a SEP plan is relatively straightforward. You’ll need to execute a formal written agreement using IRS Form 5305-SEP, provide employees with information about the plan, and set up an IRA account for each participant.


SEP plans offer a flexible, cost-effective way for employers to contribute to their and their employees’ retirement savings. With their easy setup and administration, SEP plans are an excellent choice for small businesses and self-employed individuals looking to offer retirement benefits.

For more detailed guidance on SEP plans, schedule a time to cat with one of our experts at Heritage Tax Company.  You can schedule a consultation here or learn more about us at