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Tax laws provide for plans that allow self-employed individuals to establish retirement plans for themselves and their employees, if they have any. Those most frequently encountered are the SEP (Simplified Employee Pension) and Keogh Profit Sharing Plans. Even though they are not IRAs, the SEP plans utilize an IRA account as the depository for the SEP plan contribution, thus minimizing the administration requirements of the employer.
The compensation limits for both of these plans is generally 25% of compensation. The following details the differences between contributions for employees and the amount allowed for the self-employed individual.
Both the compensation limit and the annual contribution limit are adjusted annually for inflation.