Self-Employed Retirement Plan Option SEP-IRAs

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A Simplified Employee Pension (SEP-IRA) allows employers to put money into retirement plans for their employees. People who are their own bosses can create and fund SEP-IRA retirement plans on their own behalf.

Some key SEP-IRA perks are that they allow for higher contribution limits and are less complex than the better known 401(k) plan.

Who Can Set up a SEP-IRA?

Also known as 408(k) plans, any employer can create a SEP-IRA. This includes the most common types of setups. People who have earnings from working for themselves can create a SEP-IRA, even if they also hold a job where they have a 401(k) plan.

Perks of a SEP-IRA

A SEP-IRA can provide large tax perks and is easy to start up. The amount put into a SEP-IRA provides a tax deduction to the employer (or person who works for themselves) for the tax year to which the payments are made.


SEP-IRAs do not mandate that you file them with the IRS each year. You don't have to deal with a lot of details or red tape to create a SEP-IRA.

SEP-IRA Dates to Keep in Mind

Like normal IRAs and Roth IRAs, the money you put into a SEP-IRA can be added after the year to which they apply. The normal SEP-IRA contribution deadline can be pushed out to as late as the due date of a tax return. The deadline for starting the SEP-IRA is also the due date of the tax return, plus any extensions.

The SEP-IRA must be created, and you must put money into it, by April 15 after the year in which the income was earned. Most people can extend their tax returns to as late as October 15 and also receive that same amount of time to create and fund their SEP-IRAs.

SEP-IRA Contribution Rules

You have a great deal of control over the amount you put into your SEP-IRA. There's no rule about the amount you need to put into your account each year. You can decide each year what that amount will be, which can give you better control over your money.

The amount you put in your account can be as little as 0% in any year to as much as 25% of what you're paid, up to a limit of $290,000 of eligible compensation in 2021 or $305,000 in 2022. The total amount any one person can put in their account can't exceed $58,000 in 2021 or $61,000 in 2022.

The SEP-IRA limit could be greater than the IRA limits of $6,000 in tax years 2021 and 2022 ($7,000 for ages 50 or older), depending on your earned income. It's often wise to compare SEP-IRA limits to the 401(k) limit for workers, which is $19,500 for 2021, going up to $20,500 in 2022. These limits increase to $26,000 in 2021 and $27,000 in 2020 for those who are age 50 or older.

SEP-IRAs don't offer a way to catch up on your payments once you get to a certain age, unlike IRAs or 401(k)s. But the good news is that the limits to the amount of money you can put into your account are already pretty big.


The employer must put in the same amount to every worker's account who is at least 21 years old, who earned $650 or more for the year in question, and who worked for the employer for at least three of the last five years.

Figure Out Your Compensation

People who work for themselves and want to find and fund the largest SEP-IRA amount allowed should prepare for some deep thinking.

First, the 25% limit is on net profit, not gross revenue. The deduction for half of the self-employment tax, as well as the deduction for the SEP-IRA payment itself, must be taken away from the net profit number for purposes of finding the SEP-IRA limit.


Vanguard provides a tool that can help you find the largest amount of money you can put into a SEP-IRA each year.

You should consult with a tax expert for vital matters such as this if you have more questions about the amount you can put into a SEP-IRA.

The IRS provides a helpful list of SEP-IRA resources at A SEP-IRA is one of many tax-saving plans for people who work as their own boss to look at. This plan can be used to reduce taxes and improve your future outlook for when you retire.

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  1. Internal Revenue Service. "SEP Plan FAQs."

  2. Internal Revenue Service. "Simplified Employee Pension Plan (SEP)."

  3. Internal Revenue Service. "Extension of Time To File Your Tax Return."

  4. Internal Revenue Service. "Retirement Topics - IRA Contribution Limits."

  5. Internal Revenue Service. "2022 Limitations Adjusted as Provided in Section 415(d), Etc," Pages 1-2.

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