What Is a Simplified Employee Pension Plan?

A simplified employee pension plan is a type of retirement plan that can be set up by an employer. This type of retirement plan is easier to setup than other qualified retirement plans. It is also easier to maintain. This plan does not have significant startup costs and it is also cheaper to maintain. You do not have to worry about filing any documents with the federal government as you would with a 401k, or some other type of retirement plan.

With this type of retirement plan, the employer will contribute a certain amount of money to employee retirement accounts, such as a SEP IRA. The employer has the flexibility to choose how much they want to contribute to each employee. The employer also has the option to not make any contributions for the year, if business was down. The money that they contribute is tax-deductible. This gives the employer an incentive to help the employees with their retirement because it lowers their tax liability. 

Any type of business including sole proprietorships, corporations and partnerships can utilize the simplified employee pension plan arrangement. When setting it up, you might you may eligible for a $500 tax credit for the first three years.