A SEP-IRA lets you put away up to $70,000 per year and deduct every dollar from your taxable income. Here's how it works, how to open one, and why most founders should start here.
A Simplified Employee Pension IRA (SEP-IRA) is a retirement account for self-employed individuals and small business owners. It works like a traditional IRA but with much higher contribution limits.
For 2025:
Business earns $80,000 net profit. SE tax ~$11,300. After deducting half ($5,650), net self-employment income ~$74,350.
25% of $74,350 = **~$18,588 SEP-IRA contribution limit**
In the 22% federal bracket: **$4,089 in taxes saved this year**, plus that money compounds tax-deferred for decades.
Available at every major brokerage at no cost:
Process: Go to the brokerage site → Open Account → SEP-IRA → enter your EIN and business info. Takes 15–20 minutes.
Unlike 401(k)s, you can fund a SEP-IRA **up to your tax filing deadline, including extensions** — April 15, or October 15 with an extension.
This means you can wait until you know your exact income, calculate the optimal contribution, and fund it before the deadline. You can even open the account in April for the prior tax year.
For solo founders:
Solo operator? Use the SEP-IRA.
This is the most underused tax strategy for self-employed founders. You're going to retire someday — might as well do it in a way that costs the IRS money instead of you.
Open a SEP-IRA. Contribute what you can. Reduce your tax bill today. Let compound growth work for decades. Setup is free and takes less than 30 minutes.
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