A simplified employee pension (SEP) is a written plan that allows you to make contributions toward your own (if you are self-employed) and your employees' retirement without getting involved in a more complex qualified plan.
Steve on Retirement
Under a SEP, you make the contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. SEP-IRAs are owned and controlled by the employee, and you make contributions to the financial institution where the SEP-IRA is maintained.
SEP-IRAs are set up for, at a minimum, each eligible employee (defined later). A SEP-IRA may have to be set up for a leased employee (defined earlier under Definitions You Need To Know), but does not need to be set up for excludable employees (defined later).
Eligible employee. An eligible employee is an individual who meets all the following requirements.
Has reached age 21.
Has worked for you in at least 3 of the last 5 years.
Has received at least $450 in compensation from you for 2000.
You can use less restrictive participation requirements than those listed, but not more restrictive ones.
Excludable employees. The following employees can be excluded from coverage under a SEP.
Employees covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you.
Nonresident alien employees who have received no U.S. source wages, salaries, or other personal services compensation from you. For more information about nonresident aliens, see Publication 519, U.S. Tax Guide for Aliens.
This was copied from the IRS site - for more information click on link below
You establish a SEP by adopting a SEP agreement and having your eligible employees establish SEP-IRAs. There are three basic steps in setting up a SEP, all of which must be satisfied.
You must execute a formal written agreement. You can satisfy this written agreement by adopting an Internal Revenue Service (IRS) model SEP using Form 5305-SEP, Simplified Employee Pension – Individual Retirement Accounts Contribution Agreement. You may also use a prototype SEP that was approved by the IRS. Approved prototype SEPs are offered by banks, insurance companies, and other qualified financial institutions. Additionally, an individually-designed SEP may be adopted.
You must give each eligible employee certain information about the SEP. If you establish the SEP using the Form 5305-SEP, the information must include a copy of the Form 5305-SEP, its instructions, and the other information listed in the Form 5305-SEP instructions. If you use a prototype SEP or an individually-designed SEP, you must provide similar information.
A SEP-IRA must be set up for each eligible employee. SEP-IRAs can be set up with banks, insurance companies, or other qualified financial institutions. The SEP-IRA is owned and controlled by the employee and you send the SEP contributions to the financial institution where the SEP-IRA is maintained.
Other Resources:
SEP Checklist It is important to review the requirements necessary to operate your SEP every year. This checklist has been designed as a diagnostic tool to help you keep your SEP in compliance with important tax rules.
Simplified Employee Pension (SEP) LRM Listing of Required Modifications and Information Package for use with prototype SEPs intending to satisfy the requirements of Code section 408(k).
Published Guidance Regulations, revenue rulings, revenue procedures, notices, announcements and other guidance relating to retirement plans.
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