SYSOPERATIONALRETURNS / YEAR9,500+REFUNDS DELIVERED$8M+STRATEGIES DEPLOYED400+RETURNS TRAINED GENIE10,000+UPTIME 90D99.998%IRS ACK< 90sSOC 2 TYPE IIATTORNEY-CLIENT PRIVILEGESYSOPERATIONALRETURNS / YEAR9,500+REFUNDS DELIVERED$8M+STRATEGIES DEPLOYED400+RETURNS TRAINED GENIE10,000+UPTIME 90D99.998%IRS ACK< 90sSOC 2 TYPE IIATTORNEY-CLIENT PRIVILEGE
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TAX STRATEGY

SEP-IRA: The Self-Employed Retirement Engine

How self-employed individuals and small business owners contribute up to $69,000 tax-deferred per year under IRC §408(k) — with zero administration cost.

Retirement◷ 6 min readApril 2026intermediateTaxosAgent Editorial Team
Savings Potential
$15,000–$25,000 per year in tax reduction
Results vary by situation
Eligible:LLCS-CorpSole Prop

The simplest high-limit retirement account in the code.

A SEP-IRA (Simplified Employee Pension) allows self-employed individuals and small business owners to contribute up to 25% of net self-employment income — capped at $69,000 for 2024. Every dollar contributed reduces your taxable income dollar-for-dollar.

There are no annual filing requirements, no actuarial studies, and no third-party administrators required. You open an account at any brokerage, make the contribution by your tax deadline (including extensions), and deduct it.

The $69,000 Contribution Example

Example — IRC §408(k)

Scenario: You are a sole proprietor with $276,000 in net self-employment income.

  • Net SE Income: $276,000
  • Max SEP-IRA Contribution (25%): $69,000
  • Taxable Income Reduction: $69,000
  • Tax Wealth Reclaimed (at 37% bracket): $25,530

Contribution deadline: October 15 if you file an extension — giving you maximum time to decide based on final profit numbers.

SEP-IRA vs. Solo 401(k)

  • SEP-IRA wins when: You have W-2 employees (must contribute the same percentage for all eligible employees), you want zero administration, or you missed the Solo 401(k) setup deadline (December 31).
  • Solo 401(k) wins when: You have no W-2 employees, your income is lower (employee deferral component allows higher contributions at moderate income levels), or you want a Roth option or loan provision.
  • S-Corp owners: Contributions are based on W-2 wages paid by the corporation, not total distributions. This requires careful salary planning — too low a salary reduces your allowable SEP contribution. Deadline is September 15 with extension.

Implementation Steps

  1. Open Account: Establish a SEP-IRA at any brokerage using IRS Form 5305-SEP (takes 15 minutes — no IRS filing required).
  2. Calculate Contribution: Compute 25% of net self-employment income (after the SE tax deduction), capped at $69,000.
  3. Contribute by Deadline: Make the contribution by your tax return due date including extensions (October 15 for sole proprietors, September 15 for S-Corps).
  4. Deduct on Return: Report the deduction on Schedule 1 (Line 16 — Self-employed SEP, SIMPLE, and qualified plans).

Audit Protection

Critical Compliance

The most common SEP-IRA audit failure is the employee coverage rule. If you have W-2 employees who worked for you in 3 of the last 5 years, are at least 21 years old, and earned $750 or more, you must contribute the same percentage of their compensation that you contribute for yourself. Failing to cover eligible employees triggers disqualification of the entire plan. Consult a licensed professional before establishing a SEP-IRA if you have or plan to hire employees.

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Consult a licensed professional before implementing any tax strategy. Individual results vary.

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