Introduction
If you’re self-employed or own a business, there’s still time to set up a Simplified Employee Pension (SEP) and reduce your 2025 tax bill. SEPs are easy to establish, offer generous contribution limits, and allow deductible contributions that lower taxable income.
Favorable Deadlines in 2026
A SEP can be created as late as the due date of your business’s 2025 tax return, including extensions.
- Partnerships and S corporations: March 16, 2026 (September 15 with extension).
- Sole proprietors and C corporations: April 15, 2026 (October 15 with extension).
- LLCs: Deadlines depend on elected tax treatment.
Simple Setup Process
Establishing a SEP requires completing IRS Form 5305-SEP. This form isn’t filed with the IRS but must be kept in your records and shared with eligible employees. Contributions go into SEP-IRA accounts, which are immediately 100% vested.
Tax-Deductible Contributions
Contributions you make to your own SEP-IRA and to employees’ accounts are deductible for the business. Employee contributions are excluded from their taxable income, though distributions in retirement will be taxable.
Flexible Contribution Amounts
SEP contributions are discretionary—you decide how much to contribute each year. If you have employees, contributions must be made for all eligible workers at the same percentage of compensation as your own.
Generous Limits for 2025
For 2025, contributions can be up to 25% of compensation (around 20% of net self-employment income), capped at $70,000. In 2026, the limits rise to $72,000 with a compensation cap of $360,000.
Is a SEP Right for You?
SEPs are simpler than many retirement plans but still come with rules and limits. They can be an excellent way to save for retirement while reducing taxes. Consult a tax advisor to determine if a SEP fits your situation and to maximize your 2025 tax savings.