If you’re a business owner or self-employed and haven’t yet established a tax-advantaged retirement plan, you still have an opportunity to lower your 2025 tax liability. By setting up a Simplified Employee Pension (SEP) before filing your 2025 tax return, you can make deductible contributions for the year and potentially generate significant tax savings.
SEPs are popular because they’re easy to establish, offer generous contribution limits, and provide flexible funding options. If your business has employees, you’ll generally need to include them in the plan and make contributions on their behalf — which are also deductible for your business.
Deadlines in 2026 for 2025 SEP Contributions
One major advantage of a SEP is its extended setup deadline. 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.
SEP Setup Deadlines by Business Type
- Calendar-year partnerships and S corporations
Deadline: March 16, 2026
With extension: September 15, 2026 - Calendar-year sole proprietors and C corporations
Deadline: April 15, 2026
With extension: October 15, 2026 - Limited liability companies (LLCs)
Deadlines depend on how the LLC is taxed and generally follow the same filing timelines listed above.
You must also make your 2025 SEP contributions by these deadlines in order to deduct them on your 2025 tax return.
Simple Setup and Administration
A SEP is established by completing Form 5305-SEP, officially titled “Simplified Employee Pension — Individual Retirement Accounts Contribution Agreement.” The form is straightforward and does not need to be filed with the IRS, but it should be kept with your permanent business tax records.
What Happens After the SEP Is Established
- A copy of Form 5305-SEP must be provided to each eligible employee
- A disclosure statement must also be given to covered employees
- Contributions are made to SEP-IRAs for you and eligible employees
Employee accounts are 100% vested immediately, and employer contributions are excluded from employees’ taxable income. Distributions taken later — typically in retirement — are taxable to the recipient.
Discretionary and Potentially Large Contributions
SEP contributions are discretionary, meaning you can decide each year whether to contribute and how much. However, if your business has employees, contributions must be made using the same percentage of compensation for all eligible participants, including yourself.
SEP Contribution Limits for 2025
- Up to 25% of compensation
- Approximately 20% of net self-employed income
- Compensation cap: $350,000
- Maximum contribution: $70,000
For reference, 2026 limits increase to a $360,000 compensation cap and a $72,000 maximum contribution.
Is a SEP the Right Choice for You?
While SEPs are much simpler than many other retirement plans, they still come with specific rules and limitations beyond what’s outlined here. Choosing the right plan depends on factors such as your income, business structure, and whether you have employees.
To learn more, contact us. We can help you determine whether a SEP is a good fit for your situation and assist with setting it up — while helping you maximize your 2025 tax savings.
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