Small Business Retirement Plans – SEPs

There are numerous types of retirement plans that small businesses / employers can utilize for management and employees of their business.  The key considerations for all businesses are what is the administrative burden and cost of establishing, managing, and staying in legal compliance for the selected retirement plan.

In my practice, I generally recommend one of the following two different retirement plans as the plan that makes the most sense for small businesses as they are both easy to set-up and administer on an ongoing basis.  In addition, the ongoing costs of administration is low, while still achieving the objective of providing retirement benefits for employees and management.

The plans that I generally recommend to my small business clients are, 

  • Savings Incentive Match Plan for Employees of Small Employers (SIMPLE), or
  • Simplified Employee Pension Plan (SEP)

In this article, I will be just discussing the Simplified Employee Pension Plan (SEP).  I will discuss the SIMPLE plan in a future article.

The SEP plan is the best small business plan for those businesses who want to maximize their retirement contribution for their employees because it allows a maximum employer contribution of up to 25% of compensation (maximum compensation allowed for consideration is $270,000) to a maximum contribution of $54,000 in 2017. 

The SEP plan only allows employer contributions, with the contribution percentage being the same for all eligible employees.

Advantages of a SEP plan:

  • The employer doesn’t have to make contributions every year.
  • The employer has no additional IRS filing requirements.
  • Administrative costs are low.
  • The SEP plan can be started and funded as late as the due date, including extensions, of the business’ income tax return.

Disadvantages of a SEP plan:

  • No opportunity for employees to borrow from their retirement plan.
  • Cannot exclude employees.
  • Employees can’t make salary deferral contributions.

Advantage / Disadvantage of the SEP plan (Depends on your point of view):

  • Employees are immediately 100% vested in the contributions.

You can establish SEP plans many places, (investment advisors, banks and brokerages).  I have found in my practice that the SEP plan offered through Fidelity to be very easy to set-up and use.

To discuss your specific situation and for any help you need with establishing a SEP plan or to discuss various small business retirement plans contact CFO 4 Your Biz, Eric Bremers at 402-218-1271 or

(It should be noted that, although, I usually find that the above retirement plans are the best type of plan for the small businesses that I work with; I have also helped clients implement other plans when their specific situation is better suited to a different type of retirement plan.)