SEP IRA
Employer-funded IRA for self-employed / small businesses (potentially higher limits)
A SEP IRA is commonly used by self‑employed individuals and small businesses. It allows employer contributions (which, for a sole proprietor, effectively means you contribute as the employer) and can support higher contribution amounts depending on income.
The core idea (in plain English)
You make business-funded retirement contributions. The money grows tax‑deferred and is generally taxable when withdrawn.
How contributions typically work
- Contributions are employer contributions, not employee salary deferrals.
- If you have eligible employees, you generally contribute the same percentage of compensation for them as you do for yourself (subject to rules).
Example — employer percentage rule (concept)
If you contribute 10% of compensation to your own SEP, you may need to contribute 10% for eligible employees as well.
Common pitfalls
- Adding employees later can increase required contributions.
- Assuming you can make employee salary deferrals like a 401(k) — SEP IRAs generally don’t work that way.
Quick mental checklist
If you’re self-employed and want a relatively simple, scalable retirement plan, a SEP IRA is a common choice — especially if you have no employees.
Official resources
Educational only. Always confirm eligibility, limits, and plan rules with IRS guidance or plan documents.