What Is a SEP IRA?

December 1, 2025

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Note: All tax information contained in this article is as of the publication date. Be aware that tax rules are always subject to change, and the IRS website is your official source for the latest forms and guidance.

A Simplified Employee Pension Individual Retirement Account or SEP IRA is a retirement account that offers tax advantages for business owners and those who are self-employed.

SEPs can be an option for small business owners who are looking for a simplified way to contribute toward their employees' retirement as well as their own retirement savings.

How does a SEP IRA work?

A SEP IRA works much like traditional IRAs where the money you contribute may grow tax-deferred until retirement. Contributions may also be tax-deductible, up to a certain amount, if you qualify.

It’s up to the business owner to set up the SEP and decide when and how much they’ll contribute for their employees.

Generally, as an employer, if you contribute to a SEP IRA for yourself and your eligible employees, you must contribute to everyone’s account equally (based on a percentage of salary). That means if you want to put 20% of your own salary into a SEP IRA, you must contribute 20% of any eligible employee’s salary to their SEP IRA, too. Contributions to SEP accounts are always 100% vested, or owned, by the employee.

Who can open a SEP IRA?

While any employer can open a SEP, they are generally recommended for business owners with few or no employees (e.g., the self-employed).

What are the SEP IRA eligibility requirements for employees?

If you’re a small business owner, you must include employees in the SEP plan if they:

Are 21 years or older.
Have worked for the business in at least 3 of the last 5 years.
Receive at least $800 in compensation from your business for the 2026 tax year.

You may also choose less restrictive requirements for your plan (e.g., 18 years or older, three months of service). Visit IRS.gov for more information.

How to set up a SEP IRA

The first step is to choose an account provider for your SEP IRA. There are a number of financial institutions to choose from, so do some research to find one that works for you. Once you’ve chosen where to open your account, the IRS requires the following:

Create a written agreement for all eligible employees. The IRS provides a model plan document (Form 5305-SEP) as a template. Your account provider may also have a template.
Give employees information about the SEP IRA. (This may seem obvious, but yes, you have to tell your employees about their retirement plan options).
Set up a SEP IRA account for each employee.

Keep in mind that these are just the basic steps. Visit the IRS website or consult a tax professional for more details on how to establish a SEP.

How much can you contribute to a SEP IRA?

With SEP IRAs, contributions are made by the employer. Similar to other types of retirement accounts, SEP IRAs are also subject to annual contribution limits set forth by the IRS.

For 2026, the annual maximum contribution limit is $72,000 ($70,000 for 2025) or 25% of compensation, whichever is less.

Good to know: Generally, SEP IRAs do not allow catch-up contributions. Be aware that contribution limits and rules are always subject to change, and the IRS is your official source for the most up-to-date information.

Basic SEP IRA withdrawal rules

If you’re participating in a SEP plan and withdraw your money prior to age 59½, you’re generally subject to income tax and a 10% penalty. After age 59½ you’ll be subject to income tax but no early withdrawal penalty.

Good to know: A SEP IRA follows the same investment, distribution, and rollover rules as traditional IRAs. See the IRS’s SEP IRA page for more information.

How do I know if a SEP IRA is right for me?

Given the high contribution limits, a SEP IRA may be a great option if you’re self-employed. For business owners, SEPs can be easy to set up and administer, as they usually have low administrative costs and allow you to contribute on your own terms each year.

If you have questions on whether a SEP IRA is right for you, consult a financial advisor or tax professional. You can also refer to the IRS's SEP FAQ webpage for more information.

This article is for informational purposes only and is not a substitute for individualized professional tax advice. Individuals should consult their own tax advisor for matters specific to their own taxes. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Goldman Sachs Bank USA and Goldman Sachs & Co. LLC are not providing any financial, economic, legal, accounting, tax or other recommendations in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates. Neither Goldman Sachs Bank USA, Goldman Sachs & Co. LLC nor any of their affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements of any information contained in this document and any liability therefore is expressly disclaimed. You are not permitted to publish, transmit, or otherwise reproduce this information, in whole or in part, in any format without the express written consent of Goldman Sachs. This foregoing restriction includes, without limitation, using, extracting, downloading or retrieving this information, in whole or in part, to train or finetune a machine learning or artificial intelligence system.