Simplified Employee Pension (SEP) IRA for Small Businesses
A Simple, Tax-Advantaged Retirement Plan for Your Business
A SEP IRA is a flexible, cost-effective retirement plan option designed for small businesses, sole proprietors, and self-employed individuals. With higher contribution limits than traditional IRAs and tax-deductible employer contributions, it offers a straightforward way to invest in your business’s future—and your employees’.
Key Benefits of a SEP IRA
A Simplified Employee Pension (SEP) plan provides business owners with a simplified method to contribute toward their employees' retirement as well as their own retirement savings.
- Employer-funded retirement plan designed for small businesses
- Contributions go directly into each eligible employee’s IRA
- Easy to set up and maintain with low administrative requirements
- Higher contribution limits compared to personal IRAs
- Tax-deductible contributions for the business
- Flexible annual contributions—decide year-to-year
- Employees keep the account even if they change jobs
Contribution Rules & Limits
- Employer-only contributions
- Must cover all eligible employees
- Contribution limit: the smaller of 25% of compensation or $70,000 for the 2025 tax year
- Contributions must be equal percentage-wise for all eligible employees
- Deadline: business tax filing date plus extensions
- Required Minimum Distribution (RMD) rules apply
How a SEP IRA Compares to Other Business Retirement Options
SEP IRA vs. SIMPLE IRA
- SEP allows higher contribution limits
- SEP requires employer-only contributions
- SIMPLE allows employee contributions but has lower limits
SEP IRA vs. 401(k)
- SEP is easier and less expensive to administer
- 401(k)s allow employee contributions and loan options
- SEP IRAs may be more suitable for very small businesses or sole proprietors who want flexibility in how much to contribute each year.