Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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What percentage of employee income can employers contribute to a Simplified Employee Pension (SEP) plan?

10%
25%
50%
100%

The correct answer is: 25%

In a Simplified Employee Pension (SEP) plan, employers are allowed to contribute a percentage of an employee's income up to a maximum limit defined by the IRS. The contribution limit is set at 25% of the employee's compensation or a specified annual dollar limit, whichever is lower. This structure is designed to provide a simplified method for employers to contribute to their employees' retirement savings while offering flexibility in contribution amounts. Choosing a percentage such as 25% reflects the framework and rules set by the IRS for these types of retirement plans, ensuring that small business owners and self-employed individuals can adequately support their employees' retirement without the complexities associated with more traditional retirement plans.