Handbook / Retirement accounts

SEP-IRA for the self-employed: 2026 limits, setup steps and deadlines

Tax-year note: Tax information on this page applies to the 2026 tax year (returns filed in 2027), from IRS pages checked in November 2026. Figures and dates are labelled with their tax year where they appear. Check current IRS pages before you rely on them.

A self-employed person has no employer retirement plan unless they create one. The SEP, short for Simplified Employee Pension, is one of the easiest to set up: a short written agreement, an IRA at a financial institution, and contributions you decide on each year. This guide covers how a SEP works for a one-person business, with every figure stated for the 2026 tax year and taken from IRS pages checked in November 2026.

What a SEP is

The IRS describes a SEP as a plan that lets employers set aside money in retirement accounts for themselves and their employees. Key features from the IRS plan page:

• Available to any size business. The IRS FAQ says any employer, including self-employed individuals, can establish one.
• Established by adopting Form 5305-SEP, a prototype SEP document, or an individually designed plan document.
• Only the employer contributes. The money goes into traditional IRAs, called SEP-IRAs, set up for each eligible participant.
• Participants are always 100% vested in SEP-IRA money.
• No filing requirement for the employer, and no start-up and operating costs of a conventional plan.

As a sole proprietor you are both the employer and a participant. That is why the rules talk about "employees" even when there is only you.

The 2026 contribution limit

For 2026, the IRS limits page says contributions an employer makes to an employee's SEP-IRA cannot exceed the lesser of:

• 25% of the employee's compensation, or
• $72,000 for 2026.

Elective salary deferrals and catch-up contributions are not permitted in SEP plans (except in old SARSEPs established before 1997).

Your own contribution. The IRS SEP FAQ says the same limits apply if you are self-employed, but special rules apply when figuring the maximum deductible contribution for yourself. It describes basing it on net profit, minus one-half of self-employment tax, minus your SEP contribution itself. Because the contribution appears on both sides, Publication 560 provides a worksheet and rate table to solve it. For the SEP rules, the FAQ defines a self-employed individual's compensation as net earnings from self-employment under Internal Revenue Code section 1402(a).

For context, the IRS set the 2026 elective deferral limit for 401(k) plans at $24,500 and the IRA contribution limit at $7,500. Those are separate plans with separate rules.

Setting one up

The IRS describes three steps:

1. Execute a written agreement to provide benefits to all eligible employees. The IRS model is Form 5305-SEP. You do not file it with the IRS; you keep it.
2. Give employees certain information about the agreement. With only yourself, this is a formality, but it matters once you hire.
3. Set up a SEP-IRA for each eligible participant at a bank, insurance company or other qualified financial institution.

The IRS lists situations where you cannot use Form 5305-SEP, including if you maintain any other qualified plan (except another SEP), use leased employees, or want a plan year other than the calendar year. In those cases a prototype document from a financial institution, or an individually designed plan, is the route.

Deadlines

From the IRS SEP FAQ:

• Setup: as late as the due date, including extensions, of your business's income tax return for the year.
• Deposits: by the due date, including extensions, of your federal income tax return for the year. If you obtain an extension, you have until the end of that period, regardless of when you actually file.

So a 2026 SEP contribution can be made in 2027, up to your filing deadline. That flexibility lets you decide after you know the year's profit.

The employee question

A SEP is simple for one person. Once you have employees, the plan must cover all eligible employees, and the contribution rate must be uniform. The IRS gives an example of a company that can contribute more in good years and less in bad ones, but whatever rate it chooses applies equally to all eligible employees.

Eligibility, per the IRS, can require an employee to be at least 21, to have worked for you in at least 3 of the last 5 years, and to have received a minimum amount of compensation. Check the current rules before hiring, because a SEP that covers you at 20% means 20% for eligible staff too.

Worked example

The figures are invented and simplified. A consultant expects 2026 Schedule C net profit of about $90,000 and no employees. She opens a SEP-IRA with a brokerage using its prototype document in March 2027, before filing, then uses the Publication 560 worksheet to compute her maximum deductible contribution. She decides to contribute less than the maximum because she also wants a cash reserve, and deposits it before her filing deadline.

The point is the sequence: wait for the real profit figure, compute with the worksheet, deposit by the deadline.

Planning note: Because contributions are optional each year, a SEP suits uneven income. You can contribute in a strong year and skip a weak one.

Withdrawals

SEP-IRAs follow traditional IRA rules for distributions. The IRS notes withdrawals are allowed but includible in income, and subject to a 10% additional tax if you are under 59 1/2. Loans are not permitted.

For a one-person business, a SEP is a retirement plan you can open late, fund flexibly and run with almost no paperwork.