A Simplified Employee Pension Individual retirement account (SEP IRA) is a type of retirement account that is available to small businesses. Employers can open SEP IRAs for their employees as an employee benefit. Whether you are self-employed or employ thousands of others, you can open an account. SEP IRAs are easier to set up and run than some other retirement accounts, so they’re popular for small businesses.

SEP IRAs, like other retirement accounts, offer incentives for retirement.
While employees can’t contribute money to them, they are immediately vested in their SEP IRAs, meaning any money added to the account immediately becomes theirs. They do not need to pay taxes on the contributions when they’re received. Instead, they pay taxes when they withdraw money from the account while in retirement. Employers who make contributions to a SEP IRA on their employee’s behalf can deduct those contributions as a business expense, reducing their own taxes.

Like other retirement accounts, withdrawals from SEP IRAs are restricted. If someone withdraws money before they turn 59 ½, they’ll incur a 10% penalty on the withdrawals in addition to any tax they owe.

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