A SEP-IRA, or Simplified Employee Pension IRA, is a tax-deferred retirement plan provided by sole proprietors or small businesses, most of which do not have any other retirement plan. Contributions are made by the employer only, up to 25% of compensation, which is as much as $45,000 for the 2007 plan year and $46,000 for the 2008 plan year, subject to income limits of $230,000 and $240,000, respectively. With the exception of the higher contribution limits, they are subject to the same rules as a regular IRA.
In a SEP-IRA, contributions and the investment earnings can grow tax-deferred until withdrawal (assumed to be retirement), at which time they are taxed as ordinary income. Employees with SEP-IRAs can also invest in regular IRAs.