SEP-IRA: simple, employer-only, and you can fund it at tax time
A SEP-IRA is the easiest retirement plan to set up. Only the business contributes, and you can open and fund it as late as your tax return due date. The catch: it costs more once you have employees, and it allows less than a solo 401(k) at most incomes.
Prepared by Prem Tax and Accounting Corp. Last checked against official sources on October 9, 2026.
How it works
You complete a short form (Form 5305-SEP or a provider's prototype plan) and open a SEP-IRA for yourself and each eligible employee. Contributions are deductible for the business and not taxed to employees when made.
Limits and rules for 2026
| Item | 2026 |
|---|---|
| Business contribution | Lesser of 25% of pay or $72,000 per person |
| Sole proprietor effective rate | About 20% of net earnings after half of self-employment tax |
| Pay that counts | Up to $360,000 |
| Employee deferrals and catch-up | Not allowed (employer money only) |
| Employees must be included if | Age 21 or older, worked in 3 of the last 5 years, and paid at least $800 in 2026 |
| Same percentage for all | Yes, including the owner |
The timing advantage
You can set up a SEP for a year as late as the due date of your business tax return, including extensions, and make the contribution by then. If you extend your 2026 return to October 2027, you can still open and fund a SEP for 2026.
SEP-IRA or solo 401(k)?
| Business | SEP-IRA | Solo 401(k) |
|---|---|---|
| Sole proprietor, $100,000 net profit, age 45 | $18,587 | $43,087 |
| Sole proprietor, $40,000 net profit, age 45 | $7,435 | $31,935 |
| S corporation owner paid $90,000, age 40 | $22,500 | $47,000 |
At lower incomes the gap is largest, because the solo 401(k) lets you defer your own pay. The SEP wins on simplicity and on its late deadline.
What is good
- One short form and no yearly filing
- Open and fund it after year-end, up to your return due date with extensions
- Works for any business size
- Contributions are flexible year to year
What to know
- Lower limits than a solo 401(k) at most incomes
- Same percentage for every eligible employee, which gets costly with staff
- No catch-up and no Roth deferral by the employee
- No loans
Deciding between plans? Talk to us and we will run the numbers.
Common questions
How much can I put in a SEP-IRA for 2026?
The business can contribute up to the lesser of 25% of an employee's pay or $72,000. For a sole proprietor, the effective rate is about 20% of net earnings after half of self-employment tax. Pay above $360,000 does not count.
When can I open one?
You can set up a SEP for a year as late as the due date of your business tax return, including extensions, and the contribution is due by that same date. That makes it a useful last-minute tax move.
Do I have to include my employees?
Yes. Employees who are 21 or older, have worked for you in at least 3 of the last 5 years, and earned at least $800 in 2026 must be included, and you must contribute the same percentage of pay for everyone, including yourself.
Can I make catch-up contributions?
No. A SEP has no employee deferrals and no catch-up contributions, because only the employer contributes.
Can a SEP be Roth?
You may choose to accept Roth contributions to SEP-IRAs, but you are not required to. Check with your provider.
Official sources
- IRS: SEP plan
- IRS Notice 2025-67 (2026 limits)
- IRS Publication 560
- IRS: Retirement plans for self-employed people
Let's talk about your taxes, your business, your plans.
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