The 2026 Guide to Simplified Employee Pension (SEP) IRA

If you’re self-employed, you may be wondering what options you have to save for retirement. The good news is that there are a few different retirement accounts for self-employed and small business owners depending on their need— SIMPLE IRA, Solo 401(k) and, the SEP IRA. Figuring out the best option for you and your retirement goals can be a challenge, but we got you covered. Here's everything you need to know about SEP IRAs.

A Simplified Employee Pension (SEP) account is an employer plan for small businesses. Unlike other small business plans, it does not require a company to have a minimum number of employees or have a maximum number of employees to maintain the plan.

The Benefits of Self-Directed SEP IRA

Many of our clients choose to open a Self-Directed SEP IRA account because of its many benefits and ease of management.

1. Easy to set up and maintain

This flexibility is exactly what many small business owners or self-employed individuals are looking for in a retirement plan.

2. High contribution limits

The higher contribution limits allow you to invest in alternative assets (like real estate). These can only be made by the employer.

3. Many investment options

The neat thing about a Self-Directed SEP IRA with IRAR is that the participants can invest in a wide variety of investment types. The Self-Directed SEP IRA has all the same limits and rules as a regular SEP but allows investments in alternative assets, such as real estate.

4. Adjustable contribution limits

For example, say a construction company opens a SEP plan for their employees. They chose this plan due to the cyclical nature of the industry, so in good years they can contribute more, but in off years reduce the percentage.

5. No IRS reporting requirements

Unlike a 401(k), these plans do not have any annual reporting requirements.

6. NEW: SEP Roth IRA

A SEP Roth IRA is a new option for retirement savings for self-employed individuals and small business owners. It became available as an option for retirement savings in 2023, thanks to the provisions included in the SECURE Act 2.0. It combines the contribution flexibility of a SEP IRA with the tax-free benefits of a Roth IRA. This means you contribute money you've already paid taxes on, but qualified withdrawals are tax-free. 

SEP IRA Contribution Rules

SEP IRA contributions are made by the employer, pre-tax. That means an up-front tax break or tax-deferred savings for your business. The employee doesn't pay taxes until they withdraw the money from the account before or during retirement. 

While there aren't SEP IRA income limits for participation, the maximum contribution to a SEP IRA is based on a percentage of your net self-employment income and W-2 wages for the employees. So, determining how much you can contribute to a SEP IRA is important.

The annual contributions allowed in a SEP are much higher compared to the maximum contributions allowed in a Traditional or Roth IRA. The SEP IRA doesn’t allow for catch-up contributions at age 50 like other IRAs because the employer makes the contributions to the SEP, not the employee.

See Relevant: Self-Employed IRA Contribution Limits

Who Qualifies for a SEP IRA?

An employer or small business can set up a SEP plan. The employer is treated as an employee. For example, if you own a small business (you are the employer) but you are also an employee.

Not all employees may be eligible to participate in the SEP IRA. An employer can set up rules under their SEP plan determine who’s eligible to receive a contribution. These rules apply to the employer as well. The requirements an employer could impose are an age and service requirement but cannot be more restrictive than:

• Maximum age is 21;
• For service, the maximum an employee must have worked for the business in at least 3 of the last 5 years;
• To avoid having to make contributions for seasonal employees the employer could also impose a current year compensation of at least $750 for 2025 and $800 in compensation for 2026.
  
  

For example, the employer can decide to have requirements for eligibility that are less restrictive (i.e. attained age 18), but not more restrictive than what is listed above.

Also, the employer can exclude employees covered by a union agreement whose retirement benefits were bargained for in good faith by the employees' union.

If you are the employer and have no employees, you can still establish a SEP Plan. You are considered the employee and are entitled to receive a SEP contribution even if you’re the only employee.

SEP Plan Contribution Limits

In 2025, the SEP contribution limit is up to 25% of compensation, with a maximum of $70,000. The SEP IRA max contribution amount increased to $72,000 for 2026. 

Since the employer is making the contributions, the amounts are related to the employee's salary or wages. This means that everyone’s contribution is the same percentage based on their pay for the year.

For example, if you make a 25% SEP IRA contribution to your account, you also must make a 25% employer contribution for your employees' account who qualify to participate in the plan based on their pay from the business. Although contributions can be invested in just about anything imaginable, the initial contributions must be made in cash; you cannot contribute property.

Another important thing to note is that an employer contribution to a SEP IRA won't affect the amount an employee can contribute to a Roth IRA or a Traditional IRA. However, it may prevent the employee from receiving a tax deduction for contributions to a Traditional IRA. It is best to suggest for them to seek the advice of a tax advisor if they have questions.

How to Set Up a SEP IRA

If you are an employer, you can set up a SEP retirement plan for all eligible employees by executing a formal written agreement. That agreement is the IRS form 5305-SEP that you get from your IRA custodian when you open the account. You must give each eligible employee a copy of the form.

An individual retirement account (IRA) must be established for each employee. They can do it themselves or you can do it for them. They must have an IRA to receive a contribution. IRAR can help you establish your SEP and employees’ individual retirement accounts. Once the accounts are set up, you will send the contributions directly to IRAR.

Set up and Contribution Deadline

Unlike the Traditional IRA or Roth IRA for individuals (which have a specific contribution deadline, generally April 15), SEPs are different. The deadline for establishing and contributing to a SEP IRA depends on when your business files its income tax returns.

The deadline for setting up a SEP plan is your business’ tax return due date plus extensions. It was set up this way for your business to determine whether the business made a profit for the year.

SEP IRA Distributions

Distributions from a Self-Directed SEP IRA work like any other tax-deferred IRA. Distributions are treated as ordinary income and subject to income tax (and if you are under the age of 59 ½, early withdrawal penalties) when a withdrawal is taken by the participant.

Required Minimum Distribution (RMD) rules apply to SEPs. Due to changes made by the SECURE Act 2.0, you must begin Required Minimum Distributions (RMDs) at age 73. Starting in 2033, this age increases to 75. 

Conclusion

Deciding on the best retirement plan for self-employed individuals can be tricky. SEP IRAs offer a compelling option because of its flexibility and high contribution limits.

The SEP max contribution is the smaller of 25% of compensation, or $70,000 for 2025 and for 2026 it is $72,000, which is significantly higher than Traditional IRAs. This makes SEP IRAs a great way to save for retirement. If you're looking for the "Best SEP IRA" or want to learn more about SEP IRA maximum contributions, consulting with a financial advisor or an IRAR advisor can be a smart move.

How IRAR can Help

We know that navigating financial waters can be a frustrating and daunting task. At IRAR, our job is to alleviate the stress of self-directing your SEP IRA or finding the right strategy by providing you with a comprehensive retirement plan education. We provide up-to-date information to help you make informed decisions.

We are a financial services company chartered in South Dakota and composed of the self-directed IRA industry’s top professionals. To learn more about who we are and how we can help you, book a free consultation.