Know Your Small Business Retirement Plan Options: What is a SEP IRA? | Millennium Trust Company

Know Your Small Business Retirement Plan Options: What is a SEP IRA?

March 12, 2020
By Millennium Trust

Understanding different retirement plan options can be tricky, especially when many people are only aware of 401(k) plans. When a 401(k) isn’t the right fit for a business of a smaller size, a SEP IRA, or Simplified Employee Pension IRA, could potentially be the best fit to help you and your employees save for retirement.

Here’s what you need to know when it comes to SEP IRAs:

TARGET DEMOGRAPHIC: Designed for sole proprietorships and very small businesses

EMPLOYER CONTRIBUTIONS: The employer makes all contributions. Employer contributions are capped at the lesser 25% of each employee’s compensation, or $57,000 in 2020 ($56,000 in 2019). Employer must contribute equally to all employees.

SEP IRAs provide flexibility in contributions. If your business has a good year, then you are free to contribute the maximum. In a down year, you can reduce the amount.

Learn more about SEP IRA employer contributions.

EMPLOYEE CONTRIBUTIONS: There are no employee contributions in a SEP IRA. All contributions are made by the employer.

EMPLOYER FILING REQUIREMENTS: There are generally no employer filing requirements with a SEP IRA.

VESTING: Employees are immediately 100% vested in all of the money in their SEP IRA.

SEP IRA PROS: For the self-employed and small businesses, a SEP IRA plan is designed to promote retirement savings without the cost of administration or advisory services that often come with traditional retirement plans like a 401(k). Pros include:

  1. Typically less expensive than a traditional retirement plan

  2. Easy to set up and operate

  3. Less administrative burden than a 401(k)

  4. Flexibility to lower or raise the contribution amount in a given year


  1. Employer must contribute equally to all employees

Is a SEP IRA right for your business and employees? Our Retirement Savings Selector Tool for Small Businesses can help you find the retirement plan type that could be the best fit.

Try our Selector Tool

The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.

Please select at least 1 category *