SEP IRA Contribution Limits for 2024 and 2025
A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $69,000 in 2024 and $70,000 in 2025.
Self-employed workers and small-business owners who want an easy and inexpensive retirement plan should consider a Simplified Employee Pension IRA, or SEP IRA for short. SEP IRA plans are easier to establish than other retirement plans and have lower costs to administer.
What is a SEP IRA?
A SEP IRA is a retirement account for anyone who is self-employed, owns a business, or earns freelance income. SEP IRAs are available for a variety of small-business types, including sole proprietorships, partnerships, limited liability companies, S corporations and C corporations. The plans can be an especially attractive option for a small business with few employees.
You don’t even technically need to have an established business to open a SEP IRA. Anyone who has self-employed income can open a SEP IRA, including freelancers and gig workers who aren’t considered employees.
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Unlike some other retirement plans, a SEP IRA is created primarily as a vehicle for employer contributions, and not payroll deductions. However, employers may also make contributions to their SEP IRA accounts, subject to the limit of traditional IRA contributions. Unlike 401(k) plans, the funds in a SEP IRA cannot be used as collateral for loans. As soon as a contribution is made to a SEP IRA, the money is considered 100% vested and owned by the employee.
To be eligible to participate in an employer's SEP IRA, the IRS says employees must be at least 21 years old, have worked at the business for three of the past five years and have earned at least $750 from the job in 2024 and 2025. Employers may, however, set less restrictive eligibility rules. For example, they may enroll newly hired employees. But the rules must uniformly apply to all employees.
Employers may exclude employees from their SEP IRA plan if the employees are part of a union agreement that includes retirement benefits. They also may bar nonresident alien employees who do not have U.S. wages, salaries or other personal services compensation from the employer.
2024 and 2025 SEP IRA contribution limits
For 2024, a self-employed business owner effectively can salt away as much as $69,000 a year, but no more than 25% of their compensation. (That's up from the maximum of $66,000 in 2023.) In comparison, a traditional IRA limits contributions to $7,000 for 2024 for those younger than 50, or $8,000 for those 50 or older thanks to a $1,000 "catch-up" contribution.
There are some changes to SEP limits for 2025. Next year, a self-employed business owner can save as much as $70,000 a year, but no more than 25% of their compensation. That's an increase of $1,000 from the maximum of $69,000 in 2024. For comparison, traditional IRA limits contributions to $7,000 for 2025 for those younger than 50, or $8,000 for those 50 or older thanks to a $1,000 "catch-up" contribution. While the income limits for IRAs did increase for 2025, the contribution limits did not and remain at 2024 levels.
Like other individual retirement accounts, these contributions are tax deductible. But contribution rates are required to be uniform for all employees of a company that has a SEP IRA plan, including the owner. So while these plans offer small business owners an opportunity to save much more for their own retirement than they could with a traditional IRA, the catch is they have to contribute funds at the same rate to SEP IRA accounts for all their eligible employees. The rate may change from year to year, a flexibility designed to help companies that may have differences in cash flow. Also note: Contributions must be based only on the first $345,000 of an employee’s (or owner’s) compensation for 2024, rising $5,000 to $350,000 for 2025.
SEP IRAs vs. traditional IRAs
SEP IRAs follow many of the same rules as traditional IRAs. You generally must be at least 59-1/2 to take withdrawals from the account without paying a 10% penalty. Also, SEP IRA account owners may take distributions at any time. These distributions are subject to a 10% tax penalty if the account owner is under 59-1/2 years old and does not roll the funds over into another IRA or another employer’s retirement plan.
And once you turn age 73, you will have to start taking required minimum distributions (RMDs). You have until April 1 of the year after you turn 73 to take your first required minimum distribution, but after that you must take RMDs by December 31 of each year (even if you took your first RMD on April 1 of that same year). Prior to 2023, the mandatory RMD age was 72. It will increase to 75 in 2033.
Since employers make the contributions, not employees, catch-up contributions for retirement savers 50 and over are not permitted in SEP IRAs. However, employees have the responsibility of making investment decisions about their SEP IRA accounts.
A SEP IRA is easy to open and widely available at financial institutions that offer individual retirement accounts. This type of account is also a good option for a worker with a side gig out of his or her regular job. It would allow the worker to contribute fully to his or her employer's 401(k) and use the SEP IRA for self-employment income.
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Jackie Stewart is the senior retirement editor for Kiplinger.com and the senior editor for Kiplinger's Retirement Report.
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