Self-Employed Retirement Plan Option: A SEP-IRA

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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 perks are that these plans allow for higher contribution limits and are less complex than the better-known 401(k) plan.

Key Takeaways

  • You can claim a tax deduction for the money you contribute to a SEP-IRA plan as an employer.
  • You can set up and contribute to a SEP-IRA for a given tax year up until the tax deadline in the following year, including any extension you might take to file.
  • Both the income limits and contribution limits for these plans are generous.
  • SEP-IRAs don't allow catchup contributions.

Who Can Set Up a SEP-IRA?

Also known as 408(k) plans, any employer can create a SEP-IRA. 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.

The Perks of a SEP-IRA

A SEP-IRA can provide large tax perks and it's easy to start up. Money saved in a SEP-IRA provides a tax deduction to the employer (or the person who works for themselves) for the tax year in which the payments are made.


SEP-IRAs don't mandate that you file them with the Internal Revenue Service (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 in the year after the one in which the income was earned. Most people can extend their tax returns to as late as Oct. 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 must put into your account each year. You can decide each year what that amount will be, which gives you better control over your money.

The amount you put into 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 $305,000 of eligible compensation in 2022 or $330,000 in 2023. The total amount any one person can put into their account can't exceed $61,000 in 2022 or $66,000 in 2022.

The SEP-IRA limit could be greater than the IRA limits of $6,000 in tax years 2022 ($7,000 for those who are age 50 or older) or $6,500 in 2023 (increasing to $7,500 if you're age 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 are $20,500 for 2022, increasing to $22,500 in 2023. These limits increase by $6,500 in 2022 and by $7,500 in 2023 for those who are age 50 or older.


The employer must put the same amount into every worker's account who is at least 21 years old, 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 subtracted from the net profit number for purposes of finding the SEP-IRA limit.

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 bosses to look into. This plan can be used to reduce taxes and improve your future outlook for the time when you retire.

Frequently Asked Questions (FAQs)

Do SEP-IRAs allow catchup contributions if I'm age 50 or older?

SEP-IRAs don't offer a way to catch up on your contributions, 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 generous.

How can I be sure how much money I can contribute to a SEP-IRA?

Vanguard provides a tool that can help you determine the most money you can put into a SEP-IRA each year.

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  1. IRS. "SEP Plan FAQs."

  2. IRS. "Simplified Employee Pension Plan (SEP)."

  3. IRS. "Extension of Time To File Your Tax Return."

  4. IRS. "Retirement Topics - IRA Contribution Limits."

  5. IRS. "Retirement Topics—401(k) and Profit-Sharing Plan Contributions."

  6. IRS. "SEP Contribution Limits (Including Grandfathered SARSEPS)."

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