simplified employee pension plan
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Related to simplified employee pension plan: SEP-IRA
Simplified Employee Pension Plan
Also called a SEP IRA. A retirement plan designed for persons with self-employed income
and their employees. It operates like an IRA
: it has contribution limits and may be invested in securities
. When an employer sets up an SEP, he/she creates a different account
for each employee and puts a certain percentage of each person's income
into these accounts. The percentage must be the same for the employer and all employees (although the dollar amounts will differ because of different levels of compensation
). The employer makes all contributions, which are tax deductible
for him/her; when the employee makes withdrawals upon retirement, the withdrawals are tax-free
. SEPs may exist side-by-side with 401(k)s
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simplified employee pension plan (SEP)
A special type of joint Keogh plan-individual retirement account that is created for employees by employers and that permits contributions from each party. The SEP was developed to give small businesses a retirement plan easier to establish and administer than an ordinary pension plan.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
Simplified employee pension plan (SEP).
An SEP is a qualified retirement plan set up as an individual retirement arrangement (IRA) in an employee's name.
You can establish an SEP for yourself if you own a small business, or you may participate as an employee if you work for a company that sponsors such a plan.
The federal government sets the requirements for participation, the maximum annual contribution limits, and the rules governing withdrawals.