Short for Simplified Employee Pension IRA, a SEP IRA is a retirement plan designed for self-employed people and small business owners. The employer is allowed a tax deduction for contributions made to an employee’s SEP IRA.

A SEP IRA is available to sole proprietors, partners in a partnership, or owners of businesses and to self-employed persons who earn income by providing a service, either full time or part time, even those already covered by a retirement plan at their full-time job. Those eligible may contribute up to 25% of compensation (as much as $44,000 in 2006), and any investment earnings are tax-deferred until withdrawn.

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