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SEP Plan FAQs - Establishing a SEP

Who can establish a SEP?

Any employer, including self-employed individuals, can establish a SEP.

How do I establish a SEP?

There are three basic steps in setting up a SEP, all of which must be satisfied.

  1. Adopt a formal written agreement by signing one of these documents:
    • IRS model SEP using Form 5305-SEP, Simplified Employee Pension - Individual Retirement Accounts Contribution Agreement;
    • IRS-approved prototype SEP, offered by banks, insurance companies, and other qualified financial institutions; or
    • individually designed SEP plan document.

  2. Provide each eligible employee with information about the SEP. If you established the SEP using the Form 5305-SEP, the information must include a copy of the Form 5305-SEP, its instructions and the other information listed in the Form 5305-SEP instructions. If you used a prototype SEP or individually designed SEP, you must provide similar information.

  3. Set up a SEP-IRA for each eligible employee with a bank, insurance company or other qualified financial institution. The employee owns and controls the SEP-IRA.

Is there a deadline to set up a SEP?

You can set up a SEP plan for a year as late as the due date (including extensions) of your business’s income tax return for that year.

If I have a SEP, can I also have other retirement plans?

You can maintain both a SEP and another plan. However, unless the other plan is also a SEP, you cannot use Form 5305-SEP; you must adopt either a prototype SEP or an individually designed SEP.

Can I set up a SEP for my self-employment income if I participate in my employer's retirement plan?

Yes, you can set up a SEP for your self-employed business even if you participate in your employer's retirement plan at a second job.

Can each partner in a partnership maintain a separate SEP plan?

No, only an employer can maintain and contribute to a SEP plan for its employees. For retirement plan purposes, each partner or member of an LLC taxed as a partnership is an employee of the partnership.

Do I need to update my SEP plan?

It is your responsibility to ensure that you keep your plan up-to-date with current law. If you set up your plan with a prototype plan document, you should have received an amended plan from the financial institution that provided it. If you didn't receive a new plan document, contact the financial institution. If you set up your plan with Form 5305-SEP, adopt a new form when the IRS updates it. See the instructions to Form 5305-SEP.

Can each of my employees choose a different financial institution for his or her SEP-IRA?

Although the law does not require each participant’s SEP-IRA to be at the same financial institution, the institution that offers or administers the SEP may require you to deposit SEP contributions initially into SEP-IRAs maintained at that institution.

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