Pros:

1. Simplicity: SEP IRAs are easy to set up and maintain, with minimal administrative requirements compared to other retirement plans.

2. High Contribution Limits: Employers can contribute up to 25% of an employee's compensation or $61,000 (for 2022), whichever is less. This allows for substantial retirement savings.

3. Tax Deductions: Employer contributions are tax-deductible, reducing taxable income for the business.

4. Flexible Contributions: Employers can choose how much to contribute each year, based on business performance.

5. No Vesting Requirements: Contributions immediately belong to the employee, even if they leave the company soon after.

6. Potential for Higher Contributions: Self-employed individuals may be able to contribute more to a SEP IRA compared to other retirement plans due to the 25% contribution limit.

SEP IRA (Simplified Employee Pension IRA)

Cons:

1. Employer Contributions Required: Employers must contribute the same percentage of salary to all eligible employees, including themselves, which can be costly during lean years.

2. No Catch-up Contributions: SEP IRAs do not allow catch-up contributions for individuals aged 50 and older, unlike some other retirement plans.

3. No Roth Option: Contributions to a SEP IRA are pre-tax, so there is no option to make Roth contributions that grow tax-free.

4. No Loans: Unlike some other retirement plans, SEP IRAs do not allow participants to take loans against their account balance.

5. Required Minimum Distributions (RMDs): RMDs are required starting at age 73 for account holders, which means you must begin withdrawing a minimum amount each year, subject to income tax.

Required Minimum Distributions (RMDs):

SEP IRAs are subject to RMD rules, which require account holders to begin taking withdrawals by April 1st of the year following the year they turn 73 (or 70½ if you reached 70½ before January 1, 2020). The amount of the RMD is based on the account balance and life expectancy, as calculated by the IRS. Failure to take RMDs can result in substantial penalties.