What Are the Advantages of Simplified Employee Pension Plans?
Simplified employee pension (SEP) plans enable smaller business to provide retirement benefits with lower costs and less reporting requirements than other qualified retirement plans. A SEP IRA may be appropriate for sole proprietor and small business owners.

Eligibility:
Business owners must contribute for each employee who meets the following criteria:

• Was employed by the owner in any three of the past five years.
• Is at least 21 years old by December 31 of the year the contribution is being made.
• Has performed any service for the owner during the year the contribution is made.
• Earns at least $450 (for 2006) in the year the contribution is being made.

Contribution Rules:

• Owners may choose whether and how much to contribute each year.
• There are no employee contributions.
• For 2006, the maximum contribution an owner may make to a participant’s SEP IRA is the lesser of 25% of eligible compensation or $44,000.
• Owner must contribute the same percentage to each employee’s account, including his or her own account.
• Participants may contribute to a Traditional or Roth IRA, depending on applicable limits.

Advantages:
SEPs are designed to provide an number of advantages. They have a significantly lower setup cost to the employer than regular pension or profit-sharing plans. They also offer simpler reporting and record-keeping requirements.

For employees, SEPs offer substantially higher contribution limits than regular IRAs. This enables employees to accumulate more for retirement.