Definition

• A SEP retirement account is an investment tool that allows self-employed persons to contribute to their own retirement account as well as to the retirement accounts of any employees.
  
  

Contributions

• Self-employed individuals make contributions directly to a traditional IRA or annuity that is set up as a SEP account. According to the IRS, annual contributions "cannot exceed the lesser of 25 percent of compensation, or $49,000 for 2009 and 2010." Contribution amounts are adjusted based on annual cost of living changes.
  
  

Advantages

• Contributions to a SEP retirement account allow a self-employed individual to save for retirement on a tax-deferred basis. This is beneficial because investment gains are able to grow tax-free until distribution.