Essentially, a less expensive form of a 401k that allows employers to make contributions to employee’s retirement funds. Because they are less expensive to manage, these forms of qualified plans are great for small business employers to use. Only employers can contribute to the plans, NOT the employee. Contributions to the plan are deductible for the employer and excluded from income for the employee. Earnings on contributions grow tax-deferred. There is no set contribution that must be made by employers each year, so it allows flexibility for them on this end. NOTE: many self-employed business owners open a SEP for themselves because it allows greater contribution limits to their own retirement from their own business.