A retirement plan for self-employed individuals or small business owners. A SEP provides for employer contributions only to an individual retirement account (IRA) set up for each employee. Employer contributions are discretionary and employers have the flexibility to make or not make contributions each year according to business conditions. Employees may not make elective deferral contributions to a SEP. Taxation is deferred until distribution.

For more information, see Practice Note, Simplified Employee Pensions (SEP) and Salary Reduction Simplified Employee Pensions (SARSEPs).