In which type of IRA does the employer make tax-deductible contributions?

In which type of IRA does the employer make tax-deductible contributions?

• A. Roth IRA
• B. Savings Incentives Match Plans for Employees (SIMPLE)
• C. Simplified Employee Pension Plan (SEP)
• D. Traditional IRA

Answer: (C)

The correct answer is that in a Simplified Employee Pension Plan (SEP), the employer makes tax-deductible contributions. This type of IRA is designed specifically for small business owners and self-employed individuals, providing a simple method for making contributions toward their retirement. With a SEP, employers can contribute a certain percentage of each employee's compensation, up to a limit set by the IRS. Contributions made by the employer are tax-deductible as a business expense, which can reduce the overall taxable income of the business. This makes SEPs an attractive option for employers looking to provide retirement benefits without the complexities associated with other retirement plans. In contrast, other options listed do not offer the same arrangement. For instance, a Traditional IRA allows individuals to make tax-deductible contributions, but it is primarily employee-funded rather than employer-funded. A Roth IRA allows for contributions that are made after taxes, meaning they are not tax-deductible at the time of contribution. SIMPLE IRAs allow both employee and employer contributions, but the distinguishing factor is that employer contributions are not always tax-deductible in the same way they are in a SEP. Overall, the key point about SEPs is that they provide a straightforward way for employers to contribute to their employees

The correct answer is that in a Simplified Employee Pension Plan (SEP), the employer makes tax-deductible contributions. This type of IRA is designed specifically for small business owners and self-employed individuals, providing a simple method for making contributions toward their retirement.

With a SEP, employers can contribute a certain percentage of each employee's compensation, up to a limit set by the IRS. Contributions made by the employer are tax-deductible as a business expense, which can reduce the overall taxable income of the business. This makes SEPs an attractive option for employers looking to provide retirement benefits without the complexities associated with other retirement plans.

In contrast, other options listed do not offer the same arrangement. For instance, a Traditional IRA allows individuals to make tax-deductible contributions, but it is primarily employee-funded rather than employer-funded. A Roth IRA allows for contributions that are made after taxes, meaning they are not tax-deductible at the time of contribution. SIMPLE IRAs allow both employee and employer contributions, but the distinguishing factor is that employer contributions are not always tax-deductible in the same way they are in a SEP.

Overall, the key point about SEPs is that they provide a straightforward way for employers to contribute to their employees