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What is a SEP-IRA?
What is a SEP-IRA?
A SEP-IRA (Simplified Employee Pension) is an easy to administer retirement plan for anyone who is self-employed, owns a business, employs others, or earns freelance income.
Who can participate?
Who can participate?
Any employer, including self-employed individuals, can establish a SEP.
Which employees are eligible to participate in my SEP plan?
Which employees are eligible to participate in my SEP plan?
Employees generally must be included in the SEP plan if they:
Are age 21 or older
Have worked for the business in at least 3 of the last 5 years
Received at least $800 in compensation during 2026
Additional Notes
A SEP may use less restrictive eligibility requirements
Examples include:
Lower minimum age
Fewer years of service
Lower compensation requirement
The plan generally cannot impose requirements that are more restrictive than the IRS limits
Employer contribution limits
Employer contribution limits
Employers may contribute up to 25% of an employee’s compensation
The maximum SEP contribution for 2026 is $72,000 per participant
The maximum compensation that may be considered for 2026 is $360,000
For Self-Employed Individuals
Contributions are generally limited to about 20% of adjusted net self-employment income
Net self-employment income is generally reduced by the deductible portion of self-employment tax before calculating the SEP contribution
Additional Notes
SEP contributions are generally tax-deductible
Contributions are not required every year
If the employer contributes, the same contribution percentage must generally be applied to all eligible employees
SEP plans do not allow employee salary deferrals or age 50+ catch-up contributions
Employee contribution limits
Employee contribution limits
Employees cannot make salary-deferral contributions to a SEP IRA
SEP contributions are made by the employer
Traditional IRA Contributions
Employees may also be able to make a Traditional IRA contribution to their SEP-IRA account, if permitted by the financial institution
2026 IRA contribution limit:
$7,500 if under age 50
$8,600 if age 50 or older
Additional Notes
The IRA contribution limit applies to the employee’s combined Traditional and Roth IRA contributions
Employer SEP contributions do not reduce the employee’s separate IRA contribution limit
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