SEP-IRA 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earnings grow tax-deferred until withdrawn.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.