A SEP-IRA (Simplified Employee Pension) is a retirement account self-employed people and small business owners can contribute to. Contribution limits are far higher than a traditional IRA — up to 25% of compensation or $69,000 for 2024 — and contributions are tax-deductible.
A SEP-IRA (Simplified Employee Pension Individual Retirement Arrangement) is a type of traditional IRA designed for self-employed people, freelancers, and small business owners. It allows much higher contributions than a standard IRA, and contributions are tax-deductible in the year they're made. Earnings grow tax-deferred until withdrawal.
For 2024, you can contribute the lesser of 25% of compensation or $69,000 to a SEP-IRA. If you're self-employed, the IRS uses a slightly different formula — roughly 20% of net self-employment income after deducting self-employment tax. You can use IRS Publication 560 to calculate the exact deductible amount. Contributions must be made by your tax-filing deadline, including extensions.
A traditional IRA caps contributions at $7,000 per year ($8,000 if you're 50 or older) for 2024. A SEP-IRA's $69,000 ceiling makes it the preferred vehicle for high-earning self-employed individuals who want to shelter significant income. The mechanics at withdrawal are the same: distributions in retirement are taxed as ordinary income, and required minimum distributions (RMDs) begin at age 73.
Any individual with self-employment income qualifies — sole proprietors, single-member LLCs, S-corp owners, and partners. If you have employees, the rules require you to contribute the same *percentage* of compensation for eligible employees as you contribute for yourself. That's why many small business owners with employees evaluate a solo 401(k) instead, which is available only when there are no common-law employees. The IRS SEP-IRA overview has the eligibility rules in full.