What is a SEP IRA? If you’re self-employed, here’s what you should know about the retirement plan: SEP IRA rules, benefits, and more.
Updated for the 2025 tax year.
So you work for yourself — either full-time or part-time — and you love it. Being the boss of you lets you work how you want, when you want, on the projects you want. You’re a master planner. Now you’re ready to master-plan that retirement.
If you operate as a team of one, own a company with a small number of employees, or freelance (even if it’s just a side hustle), there’s a type of individual retirement account (IRA) that you should know about. It’s called a SEP IRA.
An IRA is a tax-advantaged investment account that lets you set aside up to a certain amount of money each year to save for your retirement.
$7,000 ($8,000 if you’re 50 or older)
$7,000 ($8,000 if you’re 50 or older)
Anyone with an income is eligible to use one, though it’s popular for self-employed retirement plans. You can open an IRA with pretty much any investment advisor (including Ellevest).
“SEP” stands for “Simplified Employee Pension” plan — say that five times fast. It’s technically a type of traditional IRA, and it functions a lot like one, but with one big difference: A SEP IRA has a super-high contribution limit.
Up to 25% of earnings or $69,000, whichever is lower
Up to 25% of earnings or $70,000, whichever is lower
This limit blows a traditional IRA out of the water, and it’s way higher than an employer-sponsored 401(k), too.
$23,000 ($30,500 if you’re 50 or older)
$23,500 ($31,000 if you’re 50 or older)
Any employer, from a sole proprietor up through a corporation, can establish a SEP IRA for its employees. That said, they’re typically not as great a choice for companies with a bigger team.
This comes down to the SEP IRA rules. One is that the employer (which may be you, if you’re the business owner) makes all the contributions. Two, the employer (maybe you again) has to make the same contribution to every single employee’s account. That means if a business owner wants to put in the full 25% of her earnings for herself, she also has to contribute 25% of each of her employees’ earnings for them. This can get expensive. So, keep that in mind if, for example, you think your company will grow quickly. Unless a company’s looking to offer especially generous benefits to reduce turnover, it’s an uncommon choice.
But no matter how many employees a company has, SEP IRA eligibility is open to anyone who’s 21 years old, earns at least $750 a year, and has worked for the company in three out of the previous five years. But you can make these requirements less restrictive if you want.
Retirement for women is just different, but especially for self-employed women. In one study, 78% of self-employed women reported that they’re happier being their own boss, and nearly 100% of them plan to stay self-employed. (Maybe that’s because 70% of them said workplace discrimination and the corporate glass ceiling were part of why they left their jobs. Oof.)
But self-employed women face some gender-specific challenges, too. 20% of the women in that study reported that they need to charge less than their male peers do to get and keep clients. And 30% said they believe they have to work harder than men to get the same results. (Ugh.) And if that weren’t enough, research has also shown that self-employed women earn even less than salaried women.
So, unsurprisingly, self-employed women face a serious self-employment wage gap. (We’ll save you a click: It’s 28%.) And with the majority of freelancers in the US being women, we can’t say we’re very surprised that there’s a gig economy pay gap, too.
Add that to the very real fact that 4 in 10 people who work for themselves don't have a retirement account at all, and you’re looking at a serious self-employed gender retirement gap.
Luckily, as its full name suggests, the process to open a SEP IRA is rather simple.
Appropriately enough for a do-it-yourself type, establishing a SEP IRA is pretty DIY.
Any investment advisor, including Ellevest, can help an employer set up a SEP IRA.
You aren’t legally required to make a contribution at all. But contributing regularly is a huge step to getting the dream retirement you want.
Generally, when we estimate how much you need to retire, we recommend saving at least 20% of your annual income for retirement (and other financial goals). If that’s not possible, we say shoot for at least 10% to 15% of your annual income in your retirement accounts.
As the business owner, you’ll need to have W2 payroll set up for SEP participants, including yourself and your employees — or pay employees using 1099-NECs – and follow contribution limits prescribed by the IRS. For example, if you pay yourself as a business owner $15,000 in a year, you could contribute up to $3,750. The IRS limits the employee’s contributions to 25% of the participant's compensation (limited to $345,000 of the participant's compensation) or $70,000. As the employer, the most you can deduct for your contributions to your or your employee's SEP IRA is the lesser of the following amounts: your contributions or 25% of the compensation (limited to $345,000 per participant) not to exceed $70,000 per participant.
If you are a self-employed / freelancer and don’t pay yourself a salary, determining your max contribution limit is a little more difficult, but it tends to equal around 20% of your gross income.
If you open a retirement account at Ellevest (including a SEP IRA*), we really personalize that target number. Here’s what to expect:
Regardless of where you put your SEP IRA, we recommend investing regularly in a low-cost, diversified investment portfolio.
As it is, women retire with two-thirds the money and live 6–8 years longer as compared to men. And self-employed women may be coming from even further behind. If we don’t do what we can to save, we’ll never catch up. But hey — it takes some serious grit to work for yourself. So if anyone can do it, it’s you.
Founded in 2014 with a mission to get more money in the hands of women, Ellevest offers wealth management and financial planning services optimized for women.