If you are self employed, chances are good you are not only worried about your business today, but also interested in planning for your future. There are many vehicles for retirement savings for self employed individuals but the simplest by far is the Simplified Employee Plan Individual Retirement Account or SEP IRA.

The SEP IRA is essentially a vehicle that allows an employer to make contributions towards his or her own retirement. In this way, the SEP IRA acts a simplified and low-cost pension plan for small business. The plan not only provides great flexibility on contribution and investment offerings, but all contributions made for an employee immediately belongs to the employee providing excellent portability.

What makes the SEP IRA extremely attractive to the self employed is its simple plan requirements. You are allowed to contribute the lesser of 25% of your total compensation for the year or $41,000 for 2004 and $42,000 for 2005. All contributions to the plan directly reduce your taxable income by that amount, so you can achieve an excellent tax benefit as well. This type of plan is open to sole proprietorships, partnerships, S and C corporations, LLCs, non-profits, and Government entities.

The process of opening a SEP IRA is rather simple. You complete the 5305-SEP form and an IRA investment application. The account must be held at a qualified financial institution that is capable of administering the account. Also, there is not requirement to file any forms with the IRS unlike other qualified retirement accounts.