A SEP IRA is one of the easiest ways for a freelancer to save for retirement and lower their tax bill at the same time. It has high contribution limits, minimal paperwork and no annual IRS filing. Even better, you can usually set one up in under an hour.
This guide walks you through every step: who qualifies, how to open the account, how much you can put in and how to deduct it on your taxes.
What Is a SEP IRA?
A SEP IRA (Simplified Employee Pension) is a retirement account for self-employed people and small business owners. You make contributions as the «employer,» and they’re generally tax-deductible. The money grows tax-deferred, and you pay income tax when you withdraw it in retirement.
If you’re still deciding whether a SEP IRA is the right fit, read our comparison of the SEP IRA vs. Solo 401(k) first.
Who Can Open a SEP IRA?
You can open a SEP IRA if you have self-employment income. That includes:
- Freelancers and independent contractors (1099 income)
- Sole proprietors
- Single-member LLC owners
- Gig workers with side-business income
- Small business owners
You can also open one if you have a W-2 job and freelance on the side, as long as your freelance activity produces self-employment income.
Before You Start: What You’ll Need
Have these ready to speed up the process:
- Your Social Security number (or EIN, if you have one)
- Basic personal and contact information
- Your business name, if you use one
- Your bank account details for funding
- An estimate of your net profit for the year
Step 1: Estimate Your Net Profit
Your contribution limit depends on your net self-employment income, which is your revenue minus business expenses. Review your books or your profit-and-loss statement to get a realistic estimate. If you’re not tracking this yet, start now, because it also helps with your quarterly taxes.
Step 2: Choose a Provider
SEP IRAs are offered by many brokerages, banks and some robo-advisors. Compare:
- Fees. Many large brokerages offer SEP IRAs with no setup or annual account fees. Check the expense ratios on the funds you’ll invest in.
- Investment choices. Do you want index funds, ETFs, individual stocks or an automated portfolio?
- Ease of setup. Online applications are usually fast.
- Customer support. You may need help with paperwork or contributions.
If you’d like an automated option, see our comparison of robo-advisors for self-employed investors, and check that the provider supports SEP IRAs before you apply.
Step 3: Complete the SEP Plan Paperwork
To establish a SEP, you need a written agreement. Most providers include this in their application, using their own SEP plan documents. Alternatively, you can use IRS Form 5305-SEP. You can read about the form on the IRS Form 5305-SEP page.
You generally don’t file this form with the IRS. You keep it with your records. If you use a provider’s application, the provider handles the plan documents as part of opening the account.
Step 4: Open the SEP IRA Account
Fill out the online application. It usually asks for your personal details, your business details and the type of account. Choose SEP IRA, not a regular IRA. You’ll also name your beneficiaries. This takes only a few minutes at most providers.
Step 5: Calculate Your Contribution
For 2026, the maximum SEP IRA contribution is the lesser of 25% of compensation or $72,000. For self-employed people, the effective rate works out to roughly 20% of net self-employment earnings, because your compensation is reduced by half of your self-employment tax.
Example: Say your net profit is $80,000.
- Self-employment tax is about $11,300. Half, about $5,650, is deductible.
- Your plan compensation is roughly $74,350.
- Your maximum SEP contribution at about 20% is approximately $14,870.
These numbers are rounded and for illustration. Your tax software or a tax professional can calculate the exact amount.
Step 6: Fund the Account
You can contribute by bank transfer, and you don’t have to contribute a fixed amount. You decide how much to put in, from nothing up to the limit, depending on your income that year.
Deadline: you can generally make SEP contributions for a tax year up to your tax filing deadline, including extensions. That means you can still make a prior-year contribution in the spring if you act before the deadline. The IRS outlines the rules on its page about SEP plans.
Step 7: Invest the Money
A contribution doesn’t grow until it’s invested. Many SEP IRAs hold cash by default. Choose investments that match your timeline and risk, such as diversified index funds or a target-date fund. If you’re not sure how much to save in the first place, our guide on how to start saving for retirement as a freelancer explains the basics.
Step 8: Claim the Deduction on Your Tax Return
SEP IRA contributions for yourself are generally deducted on your personal tax return, which lowers your taxable income. You don’t need to itemize to claim it. Your tax software will ask about retirement plan contributions for the self-employed. Keep your account statements and contribution records in case you need them.
Note that this deduction reduces income tax, but it doesn’t reduce your self-employment tax.
Step 9: Keep Records and Review Each Year
- Save your plan paperwork and annual statements
- Revisit your contribution each year as your income changes
- Check the current limits on IRS.gov because they change regularly
Important Rules to Know
Employees. If you hire eligible employees, you generally must contribute the same percentage of pay for them as you do for yourself. Eligibility is based on rules such as age, years of service and minimum earnings. Think about this before hiring.
Withdrawals. Taking money out before age 59½ can trigger income tax plus an additional 10% tax in most cases, with some exceptions.
No catch-up contributions. Unlike a Solo 401(k), a SEP IRA doesn’t allow extra contributions at age 50 and older.
Roth treatment. SEP IRAs have traditionally been pre-tax. Check with your provider if you want any Roth option.
Common Mistakes to Avoid
- Opening a regular IRA instead of a SEP IRA. The names look similar, but the limits are very different.
- Leaving contributions in cash. Choose investments.
- Contributing too much. Excess contributions can carry penalties.
- Forgetting about employees. The rules can add costs when you hire.
- Missing the deadline. Plan ahead before the tax filing date.
Frequently Asked Questions
How much does it cost to open a SEP IRA?
Many providers charge no setup or annual account fees, but the investments you choose may have their own fees.
Can I open a SEP IRA after the year ends?
Generally yes. You can establish a SEP and make contributions for the prior year up to your tax filing deadline, including extensions. Confirm the details with your provider or a tax professional.
Can I have a SEP IRA and a Roth IRA?
Yes. A personal IRA has its own separate limit.
Do I need an EIN?
Not always. Sole proprietors can often use a Social Security number, though some providers prefer an EIN.
Is a SEP IRA good for irregular income?
Yes. There’s no required contribution, so you can skip a slow year and contribute more after a strong one.
Final Thoughts
Opening a SEP IRA is quick and flexible, making it a strong starting point for self-employed savers. Choose a provider, complete the plan paperwork, calculate your contribution, fund the account and invest the money. Then deduct the contribution at tax time.
Contribution limits and rules are based on IRS guidance for 2026 and change regularly. Always confirm current details at IRS.gov.
Disclaimer: This article is for educational purposes only and is not personalized financial, tax or legal advice. Examples are approximate and for illustration only. Consult a qualified tax professional about your own situation.
Last updated: October 2, 2026