simplified employee pension plan

A plan that allows a business to make contributions to a retirement plan for employees. A SEP agreement is adopted by the company and contributions are made directly to a traditional individual retirement account (IRA) or a traditional individual retirement annuity (SEP-IRA) set up for each employee. Employers can deduct the amount of contributions made on behalf of employees from their taxes. Sole proprietors can deduct the amount of a contribution on their tax returns. The maximum contribution is $35,000 or 15 percent of a participant’s compensation, which generally is limited to $170,000.