A Simplified Employee Pension IRA, or SEP IRA, is a retirement savings plan established by employers, including self-employed individuals for the benefit of their employees. Employers may make tax-deductible contributions on behalf of eligible employees — including the business owner — to their SEP IRAs. The employer is allowed a tax deduction for plan contributions that do not exceed the statutory limit. SEP IRA contributions are made to each eligible employee's SEP IRA on a discretionary basis. That means that the employer can choose to contribute (or not) each year. Employees do not pay taxes on SEP plan contributions. However, distributions of these amounts plus any earnings are subject to income taxes.