What is a 408(k)/SEP Plan commonly used for?

A 408(k)/SEP Plan, or Simplified Employee Pension plan, is primarily designed to facilitate retirement savings for employees of small businesses and self-employed individuals. This type of plan allows employers to make contributions to their employees' retirement accounts, providing a straightforward method for small employers to set up a qualifying retirement benefit.

The focus on qualified plans for small employers makes this option the most appropriate choice. Unlike other options:

• Retirement savings for high-income earners can be addressed through different types of plans that often involve higher contribution limits or additional features not offered by a SEP.

• Short-term investment accounts are structured differently from retirement plans and do not focus on the long-term growth necessary for retirement savings.

• Education savings accounts are specifically aimed at funding educational expenses, making them entirely different in purpose compared to retirement plans.

In summary, a 408(k)/SEP Plan is best understood as a tool for small employers to offer retirement benefits, facilitating employee savings in a simple and tax-advantageous manner.