What it is The Advantages Who is eligible What it isn't Contributions What It Is A SEP-IRA, or Simplified Employee Pension IRA, is a tax-deferred retirement plan provided by sole proprietors or small businesses, most of which do not have any other retirement plan. Contributions are made by the employer, up to 20% of each employee's total compensation, with a maximum contribution of $40,000. With the exception of the higher contribution limits, they are subject to the same rules as a regular IRA. In a SEP-IRA, contributions and the investment earnings can grow tax-deferred until withdrawal (assumed to be retirement), at which time they are taxed as ordinary income. The Advantages Can Also Invest in IRAs Employees with SEP-IRAs can also invest in regular IRAs, giving you another opportunity to save for your retirement. Tax-deferred Contributions and Earnings Employer contributions are made pre-tax, and the contributions and earnings can grow tax-deferred until they are withdrawn. Tax-deferred contributions and earnings make up the best one-two punch in investing. Compare the Results Employer Contributions Only employers can contribute to SEP-IRAs. While this means you have less control over the amount contributed, if you have a generous employer looking to expand your overall benefits package, this can be the beginning of a nice nest egg for your retirement. Besides, employer contributions to a SEP-IRA do not preclude you from investing in an IRA on your own. Who Is Eligible Depending on your company's rules, you may be eligible in any year you earn a salary and are a regular employee. What It Isn't See 401 k, SARSEP-IRA, SIMPLE-IRA, and Keogh to learn how other tax-deferred retirement plans offered by businesses differ from a SEP-IRA. To see which retirement plan is right for your business,click here. Contributions Contributions are made by the employer (there are no employee contributions), up to a maximum of 20% of each employee's total compensation. SEP-IRA contributions do not reduce your salary. The maximum compensation base is $200,000, making the maximum contribution per employee $40,000. The tax information provided is for informational purposes only and is not intended, and should not be construed, as tax advice or a recommendation. Intuit does not provide legal, tax, or investment advice and you should consult with a professional tax advisor about your individual circumstances.