Although 2026 is rapidly drawing to a close, certain retirement-savers still have a few days to cut their 2025 tax bills. If you participate in a Simplified Employee Pension (SEP), the absolute final deadline for making deductible contributions to the plan is October 15, 2026. Don’t delay any longer!
Background: The SEP may not be as sexy as other retirement planning vehicles, but it has been doing the job for small business owners since its inception almost 50 years ago. As with other qualified plans, like 401(k) plans, the contributions compound in your account without any current tax erosion until withdrawals are made.
However, if you have other employees on your staff, they generally must be covered by the plan as well, even if you’re self-employed. Specifically, your business must contribute to a SEP for any employees age 21 and over who have worked for the business three out of the previous five years. This includes part-timers or seasonal employees if they earned at least a minimal amount during the year ($800 for 2026).
The contributions you make to a SEP on behalf of employees are deductible by the employer just like contributions to other defined contribution plans, subject to the usual limits. Even better: Employer contributions are 100% discretionary. In other words, you’re not locked into annual payments. This allows you to increase contributions when business is booming or cut back—or even make no contributions—in a year in which the business struggles. Regardless, however, you must contribute the same percentage of compensation for each plan participant.
Contributions to the SEP vest immediately. For instance, if an employee quits soon after the contribution is made, the money is still theirs to keep. In comparison, certain other qualified plans, including many 401(k) plans, feature “cliff vesting” or gradual vesting over a period of years.
Distributions are taxed to the recipient at ordinary income rates like payouts from most other qualified plans. Furthermore, withdrawals made prior to age 59½ are subject to the usual 10% penalty tax, unless a special exception applies. Similarly, required minimum distributions (RMDs) must begin after the employee attains age 73 (scheduled to increase to age 75 in 2033).
Finally, setting up a SEP is relatively simple. All you have to do is complete Form 5305-SEP and provide proper notification and copies to employees. You don’t even have to file the form with the IRS. Unlike most qualified plans, you’re not required to provide the IRS with annual reports.
Timing is everything: The deadline for starting and contributing to a SEP is the tax return due date for that particular tax year plus extensions. Thus, you have until October 15 to make a contribution that reduces your 2025 tax liability. In comparison, no such extension is allowed for regular or Roth IRA contributions. The deadline for IRA contributions for the 2025 tax year—April 15, 2026—has long since come and passed.
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Tags: Payroll, retiirement savings, SEP-IRAs, Taxes
