Simplified Employee Pension Plans

A simplified employee pension plan (SEP) is more commonly used by small businesses and many Americans who are self-employed.  With a SEP, you can contribute up to 25% of your earning upto the annual limit, all tax-deferred.

These accounts are quite flexible since you can choose your contribution amount and are not mandated to contribute every year.  The growth is tax-deferred and the contributions each year can be used to lower your taxable income.  There are no catchup contributions regardless of age.

In 2024:
A SEP-IRA limit = 25% of your taxable income up to a maximum of $69,000
A Self-employed SEP limit = 20% of your taxable income up to a maximum of $69,000

Defined Employee Benefit Plans

These pensions are always typically funded by your employer and contributions are based on your position, tenure and income.  This type of plan provides a defined pension amount to the employee at retirement by their employer, however we do not see this type of pension benefit being offered very often unless with large corporations for their executives.

Profit Sharing Plans

These types of plans allows employer contributions and will be setup similar to a defined benefit plan.  Money purchase plans are also a similar in that they allow a defined contribution with additional fixed employer contributions.

403(b)

This is an employer-sponsored defined contribution plan originally created for teachers and nurses.  The 403(b) is similar to a traditional 401K but only offered by certain government organizations such as public schools, colleges, universities, churches, public hostipals, and charitable entities.  A 403(b) is an annuity.