The Moment
You are self-employed — freelancer, consultant, small business owner, gig worker — and you need a retirement savings vehicle. Without an employer 401(k), you are responsible for your own retirement. The SEP IRA is the simplest, fastest way to start.
How the SEP IRA Works
Contribution limit: Up to 25% of net self-employment income, maximum ~$69,000 (2025). Net SE income = gross income minus 1/2 self-employment tax minus business deductions.
Example: If your net SE income is $100,000, you can contribute $25,000 (25%). If it is $200,000, you can contribute $50,000. At $276,000+, you hit the $69,000 cap.
Tax treatment: Contributions are fully tax-deductible, reducing your taxable income dollar for dollar. A $25,000 SEP contribution in the 24% bracket saves you $6,000 in taxes immediately.
Setup: Open a SEP IRA at Fidelity, Vanguard, or Schwab. Takes 15 minutes online. No annual IRS filing required (unlike a Solo 401(k) which requires Form 5500 above $250,000).
Contribution deadline: You can contribute up to your tax filing deadline (April 15, or October 15 with extension). This means you can decide your contribution amount after you know your full-year income.
SEP IRA vs Solo 401(k)
| Feature | SEP IRA | Solo 401(k) | |---|---|---| | Setup | 15 minutes, no filing | More paperwork, Form 5500 at $250K+ | | Contribution limit | 25% of net SE income | $23,500 employee + 25% employer = higher at lower income | | Roth option | No | Yes (Roth elective deferrals) | | Loan from account | No | Yes (up to $50,000) | | Best for | High earners ($100K+ net SE income) | Lower income ($50K-$100K) or those wanting Roth |
Choose SEP IRA if: Your net SE income is above $100,000, you want simplicity, and you do not need a Roth option.
Choose Solo 401(k) if: Your net SE income is below $100,000 (higher contribution limits at lower income), you want Roth contributions, or you want the option to borrow from the account.
Run Your Numbers
Enter your self-employment income to see your contribution limit.
Retirement Savings Projector
What to explore next
- →How do I calculate my net self-employment income for SEP purposes?
- →Should I use a SEP IRA or Solo 401(k)?
- →What should I invest in inside my SEP IRA?
Frequently Asked Questions
Can I have a SEP IRA and a regular IRA?
Yes, but be careful: SEP IRA contributions are considered employer contributions. You can still make a personal Traditional or Roth IRA contribution ($7,000/year) in addition to your SEP, as long as you meet income limits. However, having a SEP IRA affects the deductibility of Traditional IRA contributions if you are above certain income thresholds.
Can I open a SEP IRA for just one good year?
Yes. There is no ongoing commitment. You can contribute in years with high income and skip years with low income. The flexibility to adjust contributions year by year is one of the SEP IRA's biggest advantages for people with variable income.