What type of contribution does a SEP plan primarily involve?

A Simplified Employee Pension (SEP) plan primarily involves employer-only contributions. In a SEP, the employer establishes a plan that allows them to contribute directly to an individual retirement account (IRA) set up for each eligible employee. This means that only the employer makes the contributions, which can vary from year to year based on the business's profitability and the employer’s discretion, up to a certain limit established by the IRS.

This structure provides a simple way for small businesses and self-employed individuals to offer retirement benefits without the complicated administrative requirements often associated with other types of retirement plans. Employees do not make contributions to the SEP; instead, the focus is solely on the employer's contribution, facilitating ease of use and flexibility for the employer in terms of funding the plan.

The option indicating employee-only contributions does not align with the SEP structure, as employees are not responsible for funding their accounts under this arrangement. Similarly, equal contributions from both employer and employee misrepresents how SEPs function, as the contributions are solely from the employer side. Voluntary employee contributions are not applicable in a SEP context, further highlighting that the plan is built around employer funding exclusively.