The SEP IRA: A Flexible Retirement Strategy for Business Owners

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Nth Degree CPAs • February 7, 2025
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For many entrepreneurs, retirement planning gets pushed down the priority list—until tax season rolls around. But with the Simplified Employee Pension (SEP) IRA, business owners have a tax-smart way to build retirement savings without the administrative drag of traditional plans.


If you're looking for a retirement option that lets you save more, stay flexible, and reduce your taxable income, the SEP IRA deserves a closer look.


What Is a SEP IRA?

A Simplified Employee Pension (SEP) is a retirement plan designed for self-employed individuals and small business owners. It allows employers to contribute to traditional IRAs set up for themselves and their employees.


What makes it stand out? It offers high contribution limits, tax-deductible funding, and minimal paperwork, making it ideal for businesses that want to offer retirement benefits without a complex setup.


Why It Works for Business Owners

A SEP IRA combines several key benefits in one streamlined plan:

  • Tax-Deductible Contributions
    Contributions to a SEP IRA reduce your taxable income for the year—giving you a dual win: saving for retirement and lowering your current tax bill.
  • Tax-Deferred Growth
    Like a traditional IRA, your investments grow tax-deferred. You won’t pay taxes until you withdraw the money in retirement—potentially at a lower tax rate.
  • Simple Administration
    SEP IRAs require virtually no annual filing from the business owner. That means fewer headaches, no plan testing, and no need to file Form 5500.
  • Flexible Contribution Deadlines
    You can fund your SEP IRA right up to the tax-filing deadline, including extensions. This gives you more time to assess your cash flow and decide how much to contribute.

Things to Keep in Mind

  • Equal Contributions for All Eligible Employees
    If you contribute for yourself, you must contribute the same percentage for each eligible employee. That’s great if you have a lean team—or one that includes family members.
  • No Participant Loans
    Unlike some 401(k) plans, SEP IRAs don’t allow loans. Funds are meant to stay put until retirement, encouraging long-term discipline.
  • Other Plans May Offer More Features
    If your business is growing quickly or you want employee deferrals and Roth options, a SIMPLE IRA or 401(k) might make more sense. It’s worth comparing plans before committing.

When a SEP IRA Makes Sense

  • You’re self-employed or have only a few employees
  • You want a retirement plan with high contribution limits and low maintenance
  • You’re looking for a way to reduce taxable income while investing for the future
  • You want the flexibility to decide how much to contribute each year based on cash flow


Want a retirement plan that’s easy to manage and still packs a tax punch? Schedule a consultation with Nth Degree today.

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