Without an employer retirement plan, saving for the future falls squarely on your shoulders. The good news: you also have more control. With the right plan, you can defer taxes on potentially thousands, invest flexibly, and build a more secure long-term future, all while running your own business.
SEP IRA: the simple, powerful choice for the self-employed
A Simplified Employee Pension (SEP) IRA is one of the most popular ways for self-employed Americans to save. It’s easy to set up, simple to run, and generous in contribution limits.
- Contribution limit (2025): up to 25% of compensation (≈20% of net self-employment income), capped at $70,000.
- Deadline: you can open and fund a SEP IRA right up to your tax filing deadline, including extensions, giving you flexibility if your income fluctuates.
- Roth option: recent law changes allow Roth SEP IRAs.
- Employees: if you hire, you must contribute the same percentage for eligible staff as you do for yourself.
Why it stands out: For simplicity and last-minute flexibility, SEP IRAs can be hard to beat—making them an ideal fit for many solo entrepreneurs.
Other U.S. retirement plan options for the self-employed
- 2025 limits: employee deferral up to $23,500 (+$7,500 catch-up at 50+; $11,250 at 60–63), plus employer contributions up to the $70,000 cap.
- Higher deferral flexibility: contribute as both employee and employer.
- Roth deferrals allowed.
- More paperwork: Form 5500-EZ required once assets top $250,000.
- 2025 deferral limit: $16,500 (+catch-up). Employer match or nonelective contribution required.
- Designed for small businesses with employees.
- Roth SIMPLE options available.
- 2025 limit: $7,000 (+$1,000 catch-up).
- Good as a supplement, but lower limits than SEP or Solo 401(k).
- 2025 limits: $4,300 self-only / $8,550 family (+$1,000 catch-up at 55).
- Not a retirement plan, but triple tax benefits make it powerful if you’re on a high-deductible health plan.
Tax advantages and implications
- Above-the-line deductions: Traditional SEP contributions reduce taxable income but not self-employment tax.
- Roth contributions: No deduction now, and withdrawals in retirement can be tax-free.
- Saver’s Credit: Lower-income savers may qualify for a federal credit (changing to a Saver’s Match in 2027).
- RMDs: Required minimum distributions begin at age 73 for SEP and traditional accounts.
Common mistakes to avoid
- Waiting too long: While SEPs allow late setup, Solo 401(k) deferrals must be elected by Dec 31.
- Over-contributing: Use IRS worksheets or a tax professional to calculate the right employer contribution percentage.
- Forgetting employee rules: If you have staff, you must contribute equally to their SEPs.
- Ignoring Roth options: Not every provider supports them—check before you set up.
Step-by-step: how to get started
- Choose your plan: For many, a SEP IRA balances ease, flexibility, and high limits.
- Estimate contributions: Target 15–25% of income if possible.
- Open an account: With PensionBee, setup is fast, and you can consolidate existing retirement savings in one place.
- Make contributions: Fund by your tax deadline (including extensions for a SEP).
- Invest and review: Pick an investment approach aligned with your goals, and revisit annually.
Final thought and next steps
As a self-employed professional, your retirement plan can be one of the most powerful tools you have to protect your future—and a SEP IRA offers simplicity and scale without added admin headaches.
With PensionBee, you can go further:
- Simplicity: one clear, modern account instead of juggling multiple providers.
- Consolidation: bring old retirement accounts together for easier management.
- Award-winning management: trusted by thousands, built to grow with you.
Take control of your retirement today. Open your PensionBee SEP IRA and build the future you deserve.
Frequently Asked Questions (FAQs)
1. What is a SEP IRA and who is it designed for?
A Simplified Employee Pension (SEP) IRA is a retirement plan specifically designed for self-employed individuals and small business owners. SEP IRAs are particularly beneficial for sole proprietors, freelancers, and independent contractors looking for a retirement plan with higher contribution limits and simpler administration than traditional employer plans.
2. What do I need to know about contributions?
If you're a sole proprietor with no employees, you can contribute up to $70,000 or 25% of your adjusted compensation in 2025, whichever is less.
For self-employed individuals, the IRS uses a special calculation to figure out adjusted compensation. Your adjusted compensation is your net earnings from self-employment, minus:
- One-half of your self-employment tax, and
- The amount you contribute to your own SEP-IRA.
- This adjusted figure is what your SEP IRA contribution limit is based on.
(Note: Because your contribution also reduces your compensation, the math works out so that your maximum contribution is effectively about 20% of your net business income before adjustments. This is a helpful shortcut when estimating how much you can contribute.)
For Example: If you're a sole proprietor with $200,000 in net business income for 2025, your SEP IRA contribution won’t be a straight 25% of that amount.
The IRS requires you to first adjust your income by subtracting:
- Half of your self-employment tax, and
- The SEP contribution itself.
After using the IRS formula, your adjusted compensation comes out lower, so your maximum SEP IRA contribution would be around $40,000—which is roughly 20% of your original net income.
That’s still significantly more than the $7,000 contribution limit for a Traditional or Roth IRA, and it's a useful way for self-employed individuals to boost retirement savings.
3. Who is eligible to participate in a PensionBee SEP IRA?
PensionBee’s SEP IRA is exclusively designed for self-employed individuals or sole proprietors with no employees. Form 5305-SEP is used to set the eligibility criteria.
4. What is the contribution deadline for a SEP IRA?
The deadline to contribute to an IRA for a given tax year is typically April 15 of the following year.
5. Can I rollover other retirement accounts into my PensionBee Account?
Yes, you can rollover savings from other qualified retirement plans, such as 401(k)s, Traditional IRAs, Roth IRAs, or other employer-sponsored plans into the PensionBee app.
At PensionBee, we help keep things simple and organized. Your SEP IRA, designed for self-employed retirement savings, is held separately from your Traditional (pre-tax) and Roth (post-tax) IRAs.
Each account maintains its own tax status: rolled-over pre-tax funds go into a Traditional IRA, post-tax funds roll into a Roth IRA, and new SEP contributions remain in your SEP IRA.
PensionBee allows you to manage your SEP, Roth, and Traditional IRAs all within one convenient app, making it easier to keep your retirement savings organized and accessible in one place.
6. Why do I need to complete a Form 5305?
Form 5305-SEP is required to establish your Simplified Employee Pension (SEP) plan with the IRS. This IRS form serves as the basic legal document for your SEP IRA, outlining eligibility requirements and contribution formulas. While you don't file this form with the IRS, you must complete it, sign it, and keep it with your business records.
7. How is a SEP IRA different from a Traditional IRA or a Roth IRA?
SEP IRAs have much higher contribution limits ($70,000 instead of $7,000 for other IRAs), which can make them a good choice for self-employed workers. Additionally, Traditional IRAs are funded with pre-tax dollars, while Roth IRAs are funded with after-tax dollars, offering tax-free growth and withdrawals under certain conditions. SEP IRAs have similar tax treatment to Traditional IRAs.
8. When should I establish and fund my SEP IRA plan?
A SEP IRA must be established by the business’s tax filing deadline, including extensions, to make contributions for that year. For example, if you are filing a tax return on April 15, you must establish the SEP IRA before that date to make contributions for the previous year. Contributions to the SEP IRA can be made up until the tax filing deadline.
9. Can I contribute to both a SEP IRA and other retirement accounts?
Yes, you can contribute to both a SEP IRA and a Traditional or Roth IRA in the same year.
However, each account has its own contribution limit:
- For SEP IRAs: You can contribute up to 25% of your compensation or $70,000 for 2025 (whichever is less).
- For Traditional and Roth IRAs: You can contribute up to a combined total of $7,000 ($8,000 if you're 50 or older) in 2024.
To learn more about IRA deductions, visit the IRS.
10. Do I have to contribute the same amount every year to my SEP IRA?
No! One of the benefits of a SEP IRA is flexibility. You can adjust your contribution percentage year to year based on your earnings, or even skip contributions entirely in years when finances are tight.
11. What are the rules for withdrawing from a SEP IRA plan?
Withdrawals from a SEP IRA are taxed as ordinary income in retirement. You can begin taking withdrawals penalty-free at age 59½. If you withdraw funds before that age, you may face a 10% early withdrawal penalty, in addition to ordinary income taxes. Required Minimum Distributions (RMDs) must start at age 73.
13. What if I already have a SEP IRA?
If you already have a SEP IRA, you can roll it over into a Traditional IRA with PensionBee and keep contributing pre-tax income, helping lower your taxable income today while deferring taxes until retirement.
15. Can I see examples of potential retirement savings?
Yes, PensionBee’s Retirement Calculator allows you to model different scenarios for your SEP, Traditional, and Roth IRAs. You can explore how contributions, age, and current retirement savings affect your retirement outcomes. This helps you plan effectively and make informed decisions. Try it here.
Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.
