They call it an excise tax. The exceptions to this are death or disability, or if the owner of the IRA decides to use it as an annuity, and the distributions are made similar to an annuity which disperses the funds evenly over the life expectancy of the owner. There are several advantages to the owner of a business who decides to set up a SEP for his employees. Previously, the employer was not required to contribute to the plan. Reporting is very minimal.
Employees have an easy time understanding the plan.
IRS Form 5305A-SEP is an easy form to fill out. And best of all, there is little or no administrative expense associated with the plan. There are also many benefits to the employee if this plan is in place. The deferred salary is not taxed at the current rate. Earnings in the account are also not currently taxed.