Consider a simplified employee pension (SEP IRA) plan for your small business A small business retirement solution for employees - and it's usually for owners, too. The Simplified Employee Pension Plan, or SEP IRA, is a small business retirement plan that's easy to set up. Eligible employees establish SEP IRAs, to which tax-deductible contributions are made only by the employer. The contribution percentage can vary each year, from 0-25% of compensation. The same percentage of compensation must be contributed for all eligible participants, including the owner-employee.What Are the Benefits of a SEP IRA?Adds a valuable incentive for attracting and retaining better employees.Potential for increased worker productivity, especially if your plan is tied to profits.Can be combined with a traditional IRA or a Roth IRA.Employer can deduct all contributions made to the plan and it is not considered taxable income to the employees (although employees will owe taxes when they take withdrawals from their accounts).Investment earnings are tax-deferred until withdrawal.Flexibility: You don't have to commit to contributing every year.What Are the Requirements of a SEP IRA?Generally, the following requirements must be met:Set up by any employer — including a sole proprietorship, partnership, corporation, or nonprofit organization - with one or more employees.Participants must be at least the age of 21.Include all employees who have performed services for the employer for three of the preceding five yearsEmployers have the option to offer the plan to more people, for example, all employees with at least one year of service.Received at least $600 in compensation from the employer during the year, for example, 2018 and 2019.How to Set Up a SEP IRADevelop a formal written agreement that outlines the benefits to eligible employees. The agreement may be the IRS model Form 5305-SEP, an IRS-approved prototype SEP from a financial institution or the employer's individually designed SEP plan document.Provide information about the SEP IRA to each eligible employee, including information about the eligibility requirement, general rules, and guidelines of the SEP IRA plan.Ensure that each eligible employee has a SEP IRA established. Failure to do so could cause the IRS to disqualify the SEP plan.The SEP plan is easy to operate. It's a tax-deductible way for small-business owners to attract and retain employees, while also saving for their own retirement. After all, the owner is generally an eligible participant. Discover more retirement plan options for small business.