Q: Who is eligible for a SEP IRA?

Self-employed people, like freelancers , and small business owners who have few to zero employees are generally eligible for SEP IRAs. The reason why we say “few to zero” is because if you’re the business owner opening IRA accounts for your employees, you must contribute on their behalf, and the contributions must match what you contribute to your own account. For example, if you want to contribute 20% of your pay to your SEP IRA, then you also need to contribute 20% of each employee’s pay to their SEP IRAs. Your employees are eligible to participate if they meet these requirements: At least 21 years old Have worked for you for three of the past five years Have earned at least $600 from you in the past year

Question 1

Who is eligible for a SEP IRA?

Accepted Answer

Self-employed people, like freelancers, and small business owners who have few to zero employees are generally eligible for SEP IRAs.

The reason why we say “few to zero” is because if you’re the business owner opening IRA accounts for your employees, you must contribute on their behalf, and the contributions must match what you contribute to your own account.

For example, if you want to contribute 20% of your pay to your SEP IRA, then you also need to contribute 20% of each employee’s pay to their SEP IRAs.

Your employees are eligible to participate if they meet these requirements:

At least 21 years old
Have worked for you for three of the past five years
Have earned at least $600 from you in the past year

Question 2

What are the SEP IRA contribution limits for 2023?

Accepted Answer

You can contribute up to $66,000 to your SEP IRA or 25% of your compensation in 2025 —whichever is the lesser of the two. The 25% of compensation limit is also the limit of how much you can contribute for each eligible employee.

The contribution limit is one of the most notable differences between an SEP IRA and a traditional one, which sets a limit at $6,500 for 2025.

The downside is that with an SEP IRA there are no catch-up contributions for those 50+. Those are allowed with traditional and Roth IRAs, and the catch-up contribution limit is an additional $1,000.

It’s also worth noting that IRA contribution limits change year-by-year. The contribution limits above are for this year, 2025.

Question 3

Is there a difference between a SEP and a SEP IRA?

Accepted Answer

SEP stands for Simplified Employee Pension, and it’s a type of traditional IRA for self-employed people or small business owners with no to very few employees. When you hear someone say SEP, they’re talking about a SEP IRA.

Question 4

Can you lose money in a SEP IRA?

Accepted Answer

SEP IRAs and other kinds of IRAs are tax-advantaged accounts that hold many different types of investments. Individual investments may lose value, and it is possible to lose money in a SEP IRA, but it’s very, very unlikely you’d lose everything.

The two best ways to protect your IRA investments is to diversify them. Don’t invest everything in one or two investments. Also, as you get older and closer to retirement age, you’ll want to rebalance your portfolio so it stays aligned with your risk tolerance.

Bobby Hoyt

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