A simplified employee plan combines many advantages of a 401(k) plan, but is as easy to understand as an IRA.
Any small closely held companies want to help their employees establish retirement programs. Without going to the expense of a formal profit-sharing plan or having an outside company administer a retirement program, closely held companies should look at simplified employee plans. A simplified employee pension plan, commonly known as a SEP, is an arrangement under which an employer makes contributions to the individual retirement accounts of its employees. If the employee does not have an IRA, he would have to open one. This type of plan is ideally suited for small closely held businesses as well as self-employed individuals. A SEP plan combines many of the advantages of more complex plans, such as 401(k) plans, but is as simple to understand as an IRA. Because of the simplicity of setting up a SEP, very few administration costs are associated with this plan, and you don't need an outside company to establish or administer it.
Clearly the most obvious benefit of establishing a SEP IRA is for future retirement income. Today, many Americans are troubled about the uncertainty of Social Security. With proper retirement planning, many of those uncertainties can be avoided. The advantages of a SEP include: