SEP-IRA : Pension Plan for Small Business

SEP stands for Simplified Employee Pension. This is a special type of IRA
plan that allows an employer to make contributions toward his or her own
(if self-employed) or employees' retirement. The SEP essentially functions
as a low-cost pension plan for small businesses.

The SEP-IRA enrollment process is also very simple. It's a 2-page
application process. The employer needs to complete Form 5305-SEP. The
employee completes the IRA investment application usually supplied by a
mutual fund company or some other financial institution which will hold and
manage the funds. The best part is: nothing needs to be filed with the IRS
to establish the SEP-IRA or subsequently. Unlike many other retirement
plans SEP does not require IRS annual returns. Any investment earnings
grow tax-deferred until withdrawn.

Some other facts about SEP-IRA:
Employers can contribute a maximum of 25% of an employee's eligible
compensation or $42,000 (for 2005 Tax year), whichever is less.
Employees are able to exclude from current income the entire SEP
contribution.
The money contributed to a SEP-IRA belongs to the employee immediately
and always. If the employee leaves the company, all contributions also
leave with the employee.