SEP-IRA

A SEP-IRA is the simplest employer retirement plan for the self-employed: the business contributes up to 25% of each participant's W-2 compensation (about 20% of net self-employment earnings after the required adjustments), capped at $70,000 for 2025, with no annual filing and near-zero administration. Contributions are discretionary year to year and, uniquely, a SEP can be opened and funded as late as the extended due date of the return, making it the classic retroactive deduction discovered at tax time. The tradeoffs: no employee deferral component, so at moderate incomes a solo 401(k) shelters far more; no participant loans; and the same contribution percentage must be given to every eligible employee, which gets expensive with staff. SEP balances are pre-tax IRAs, so they trigger the pro rata rule and quietly break the backdoor Roth strategy for high earners. Many owners start with a SEP for simplicity and graduate to a solo 401(k) or add a defined benefit plan as income grows.