SEP IRA
A Simplified Employee Pension IRA allowing self-employed individuals and small businesses to save for retirement.
What is SEP IRA?
A Simplified Employee Pension IRA (SEP IRA) is a retirement savings plan designed for self-employed individuals and small business owners. Contributions are made solely by the employer (or self-employed individual) — not by employees — and are tax-deductible as a business expense. For 2025, contributions are limited to 25% of compensation up to $70,000 per year — far higher than standard IRA limits. SEP IRA funds grow tax-deferred and withdrawals are taxed as ordinary income. Setup and administration are simple compared to 401(k)s, making SEP IRAs popular for freelancers, consultants, and sole proprietors.
Example
A freelance consultant earning $150,000 contributes 25% ($37,500) to a SEP IRA. The full contribution is tax-deductible, reducing their federal taxable income by $37,500 — a tax savings of $13,500 in the 36% effective bracket.
Source: IRS — SEP Plan FAQs