Revisions to simplified employee pension plans increase their usefulness

Simplified employee pensions (SEPs) were mainly designed so that small businesses can provide qualified retirement plans for their employees. The Tax Reform Act of 1986 made it possible for employees to make pre-tax contributions to an employer-established SEP, though it is only an option for businesses with a maximum of 25 employees and at least half of the employees must participate. An example of a self-designed SEP is presented, showing how to avoid the top-heavy provisions of many such plans.