Running a small business can consume most of your attention. Between clients, employees, cash flow, taxes, and daily operations, choosing a retirement plan such as a SEP-IRA can easily fall to the bottom of the list.
A Simplified Employee Pension IRA, or SEP-IRA, may offer a straightforward option for certain business owners who want to save for retirement without taking on the administration of a more complex plan.
At True North Wealth Management, we help business owners evaluate retirement plan options that fit their goals, cash flow, employee structure, and long-term financial strategy.
What Is a SEP-IRA?
A SEP-IRA is a retirement plan that allows an employer to make contributions to individual retirement accounts set up for the business owner and eligible employees.
SEP-IRAs can be used by sole proprietors, partnerships, corporations, and S corporations.
The plan is often attractive because it is relatively simple to establish and maintain compared with some other business retirement plans.
Flexible Contributions
One of the main advantages of a SEP-IRA is flexibility.
The business does not have to contribute every year. In a strong year, the employer may contribute more. In a lean year, the employer may reduce or skip contributions.
For 2026, employer contributions generally cannot exceed the lesser of 25% of compensation or $72,000 per eligible employee.
That flexibility can be helpful for business owners with variable income.
Eligible Employees Are Included
A SEP-IRA is an employer-funded plan. Employees do not make elective salary deferrals into the SEP-IRA the way they might with a 401(k).
If the employer contributes, the contribution percentage generally must be the same for all eligible employees, including the owner.
Employees are typically eligible if they are at least age 21, worked for the employer in at least three of the last five years, and earned at least $800 in 2026. Employers may choose less restrictive eligibility rules.
All SEP contributions are immediately 100% vested.
Simple Administration
SEP-IRAs can be easier to administer than many other retirement plans.
In many cases, a business can establish the plan using IRS Form 5305-SEP and keep the form with its records. The form does not need to be filed with the IRS.
Each eligible employee establishes an individual SEP-IRA account, and the employee generally directs how the money is invested within that account.
A SEP-IRA may also be established and funded as late as the business’s tax-filing deadline, including extensions, for the prior year.
Important Limitations
A SEP-IRA may not fit every business.
Business owners should consider several limitations:
- Employees cannot make salary deferrals into the plan.
- Catch-up contributions are not available for older participants.
- The same contribution percentage generally applies to all eligible employees.
- Loans are not allowed from SEP-IRA assets.
- Withdrawals before age 59½ may trigger taxes and a 10% federal penalty unless an exception applies.
- Required minimum distributions generally begin at age 73 under current rules.
For a business with employees, the cost of contributing for everyone can become significant.
SEP-IRA or Another Retirement Plan?
A SEP-IRA may work well for self-employed individuals, solo business owners, or small businesses that want flexibility and low administrative complexity.
Other plans, such as a SIMPLE IRA, solo 401(k), or traditional 401(k), may be better in some situations.
The right choice depends on:
- Business income
- Number of employees
- Owner savings goals
- Desired contribution flexibility
- Administrative tolerance
- Payroll structure
- Tax planning
- Whether employee deferrals are important
Build the Plan Around the Business
A SEP-IRA can be a practical retirement tool for the right business owner. It offers flexibility, relatively simple administration, and the ability to make meaningful employer contributions.
At True North Wealth Management, we help business owners compare retirement plan options and coordinate those choices with cash flow, taxes, employee benefits, business growth, and personal retirement goals.
The right retirement plan should support both the business and the owner’s future.
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Important Disclosures:
This material is for informational purposes only and is not intended as tax, legal, accounting, payroll, retirement-plan, employee-benefits, or individualized financial advice. SEP-IRA rules, contribution limits, eligibility requirements, tax treatment, deadlines, and penalties may change. True North Wealth Management does not provide tax or legal advice. Consult qualified tax, legal, payroll, retirement-plan, and financial professionals regarding your circumstances.
The IRS states that SEP-IRA employer contributions for 2026 cannot exceed the lesser of 25% of compensation or $72,000, and that elective salary deferrals and catch-up contributions are not permitted in SEP plans. The IRS also lists the 2026 SEP compensation threshold at $800. (irs.gov)
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite and customized by True North Wealth Management LLC to provide information on a topic that may be of interest. FMG, Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.