A SEP IRA (Simplified Employee Pension Individual Retirement Arrangement) is a type of retirement plan that’s especially popular with self-employed individuals and small business owners due to its simplicity and high contribution limits.
Who can set one up:
Sole proprietors, partnerships, corporations, and S corporations.
Employers can set one up for themselves and their employees.
Contribution Limits (2025):
Up to 25% of compensation, or $69,000, whichever is less.
Employees cannot contribute to their SEP IRA — only employers can.
Tax Advantages:
Contributions are tax-deductible for the employer.
Funds grow tax-deferred until withdrawn in retirement.
Flexible Contributions:
You’re not required to contribute every year.
You can decide how much to contribute based on your business’s performance.
Eligibility Rules: Employees must be at least 21, have worked for the employer in at least 3 of the last 5 years, and earned at least $750 (2024 limit; may adjust yearly).
Setup Deadline: Can be opened and funded as late as the employer’s tax-filing deadline (including extensions).
Withdrawals: Same rules as traditional IRAs: penalties and taxes apply if you withdraw before age 59½, with some exceptions.
In summary:
Feature
5305-SEP
5305A-SEP
Who sets up the plan
Employer
Financial institution
Where accounts are held
Same institution for all
Group SEP maintained by the institution
Plan sponsor
Employer
Financial institution
Complexity
Simpler
Slightly more complex
Commonly used by
Sole props, small biz owners
Banks, investment firms
Have a question about a Roth IRA? Reach out to us!
