Simplified Employee Pensions can reduce your 2025 taxes.

If you own a business or are self-employed and haven’t yet set up a tax-advantaged retirement plan, you still have time. By establishing a Simplified Employee Pension (SEP) before you file your 2025 tax return, you may be able to make deductible contributions for 2025 and reduce your tax bill. For more 2025 Tax Year guidance, visit our Tax Hub. 

SEPs are popular because they:

• Can be set up late (even in 2026 for 2025 taxes)
• Are easy to establish and administer
• Allow for relatively large contributions

If you have employees, you’ll need to include them in the plan and make contributions on their behalf. Those contributions are also deductible.

2026 Deadlines for 2025 SEP Contributions

A SEP can be established as late as the due date of the business’s tax return (including extensions) for the year the plan first applies.

For example:

• Calendar-year partnerships and S corporations

  • March 16, 2026
  • September 15, 2026 (with extension)

• Calendar-year sole proprietors and C corporations

  • April 15, 2026
  • October 15, 2026 (with extension)

For LLCs, the deadlines depend on how the LLC is taxed. You have until these same deadlines to make 2025 contributions and still deduct them on your 2025 return.

Simple Setup

Setting up a SEP is straightforward. You establish the plan by completing Form 5305-SEP, “Simplified Employee Pension — Individual Retirement Accounts Contribution Agreement.”

• The form is not filed with the IRS
• It should be kept with the business’s permanent tax records
• A copy must be provided to each eligible employee, along with a disclosure statement

Contributions are made to:

• Your own SEP-IRA
• Each eligible employee’s SEP-IRA (if applicable)

Employee accounts are immediately 100% vested. Contributions made for employees are not taxable to them when made, but distributions taken in retirement will be taxable.

Discretionary, Potentially Large Contributions

SEP contributions are discretionary. Each year, you decide whether to contribute and how much.

However, if you have employees:

• The business must contribute the same percentage of compensation for all eligible employees as they do for the owner

Contribution Limits for 2025:

• Up to 25% of compensation (or about 20% of net self-employed income)
• Compensation limit: $350,000
• Maximum contribution: $70,000

 If Planning ahead, the Contribution Limits for 2026:

• Compensation limit: $360,000
• Maximum contribution: $72,000

Is a SEP Right for You?

SEPs are simpler than most retirement plans, but they’re still subject to additional rules and limitations beyond what’s covered here. If you’d like to learn more, contact your Wegner CPA’s tax advisor.  We can help you determine whether a SEP is the best fit for your situation or if other retirement plan options better meet your short and long-term goals.