The SEP IRA rules for how much you can contribute are a little more complicated than other retirement accounts. First, the employer contribution percentage must be the same for all employees. The boss does not get to receive more than anyone else in the company. If the boss receives 10%, for example, every other employee also receives 10% of their income. The percentage must be the same, even if the employee does not contribute to their SEP IRA.
And of course, there is a maximum that can be contributed to the SEP IRA. For 2020, individuals can contribute up to $57,000 to their account ($56,000 for 2019).
This comes with a little caveat. Your annual SEP contributions cannot exceed the lesser of 25% of your annual compensation or $57,000. The rules go one step further and limit your compensation to the first $285,000 of income for each employee. That means the percentage of compensation each employee receives from the employer cannot be applied to any income earned over $285,000.
So if the employer contributes 10%, the employee can contribute up to an additional 15% of the first $285,000 they earn. But again, only to a maximum of $57,000.
All contributions are tax-deductible, and employer contributions are vested immediately. Also, employees manage their own investments through the SEP IRA. Once the account is open, you can invest in whatever options the brokerage has. There should be a wide variety of mutual funds and index funds, as well as bonds, so you can design a portfolio that works for you.