The Right Retirement Plan

Definition

A Simplified Employee Pension (SEP) IRA is a retirement account for self-employed individuals and small business owners. Contributions are employer-only, up to 25% of compensation or $72,000 (2026), whichever is less.

Why it matters in retirement

If you're self-employed or earning 1099 income in retirement, a SEP-IRA lets you shelter dramatically more than a regular IRA — up to 10× more in many cases. Simple to open, cheap to run, and massively underutilized.

Key numbers · 2026

Contribution limit (2026): $72,000
Contribution cap: 25% of comp
Self-employed effective rate: ~20% of net SE
Deadline: Tax filing + extensions

Pros

Very high contribution limit
Simple to administer
Flexible — skip contributions in low-income years
Tax filing deadline contributions allowed

Cons

Employer must contribute equal % for all eligible employees
No Roth option (yet widely available)
No loans
Counts against pro-rata rule for backdoor Roth

Common mistakes

Opening a SEP when employees make it expensive (Solo 401(k) may fit better)
Combining SEP with backdoor Roth (pro-rata rule trap)
Missing the tax filing deadline for current-year contributions
Not understanding the 25% of net self-employment calculation

The part most people miss

A Solo 401(k) allows both employee and employer contributions — getting you to the same $72,000 limit on much lower income than a SEP requires. For solo operators without employees, it's usually the better choice.

SEP-IRA

Definition

Why it matters in retirement

Common mistakes

IRA

401(k)

Roth IRA

Pension

Want help applying sep-ira to your situation?