Roughly 1 in 3 self-employed Americans is a woman, and the number is climbing every year. Yet self-employed women are significantly less likely to contribute to a retirement account than W-2 employees — partly because nobody hands you a 401(k) when you go out on your own. You have to set it up yourself. The SEP IRA is the simplest, highest-limit option for most freelancers and solo business owners.
What is a SEP IRA?
SEP stands for Simplified Employee Pension. It's a retirement account designed for self-employed people and small business owners. Despite the name, you don't need "employees" — you can open one as a sole proprietor with zero staff. You contribute pre-tax dollars, the money grows tax-deferred, and you pay income tax when you withdraw in retirement.
Think of it as a 401(k) you set up for yourself, but simpler: no annual filings, no plan administrator, no employer matching rules to figure out. You decide each year how much to contribute (or whether to contribute at all), up to a limit based on your net self-employment income.
2025 SEP IRA contribution limits
For the 2025 tax year, you can contribute the lesser of:
- 25% of your net self-employment earnings (roughly 20% after the IRS's deduction math for sole proprietors — see below), or
- $70,000 — the IRS hard cap for 2025 (up from $69,000 in 2024).
Compare that to a Roth IRA ($7,000 cap in 2025) or a traditional employee 401(k) ($23,500 employee deferral). A SEP IRA lets a high-earning freelancer shelter ten times what a Roth allows.
The 25%-vs-20% wrinkle: the IRS technically lets you contribute up to 25% of "compensation." For sole proprietors, "compensation" means net self-employment income minus half of your self-employment tax, and then the contribution itself is deducted from that base. The math works out to roughly 20% of your net profit as your practical contribution ceiling. Most tax software and SEP IRA calculators handle this automatically.
A worked example
You're a freelance designer. After expenses, your Schedule C net profit for 2025 is $80,000. Your approximate maximum SEP IRA contribution is about $14,870 (roughly 20% of net profit after the SE-tax adjustment). At a 24% federal marginal tax bracket, that contribution lowers your federal tax bill by about $3,570 — and the full amount keeps compounding tax-deferred for decades.
Run the same exercise at $150,000 net profit and your contribution ceiling climbs to roughly $27,900, with a federal tax saving in the $6,700 range. The higher your income, the more the SEP IRA does for you.
Why this matters more for women
Self-employment is one of the fastest-growing categories for women — and one of the most under-pensioned. Women already retire with significantly less than men on average, a gap that compounds across a career: lower starting salaries, career breaks for caregiving, longer life expectancy, fewer years of employer-matched retirement contributions.
Going self-employed often makes that worse, because the default employer 401(k) disappears. The SEP IRA is the tool that closes the gap — and the gender-wealth gap specifically — by letting you make outsized retirement contributions in your highest-earning years to make up for gaps elsewhere.
SEP IRA vs Solo 401(k) vs Roth IRA
- SEP IRA — easiest to open, highest contribution cap for most freelancers, pre-tax contributions only. Best when you want to shelter a large chunk of income with minimal admin.
- Solo 401(k) — slightly more paperwork, lets you contribute as both employee ($23,500) and employer (~20% of profit), plus a Roth option. Often beats a SEP IRA below ~$100K of net profit because of the employee-deferral component.
- Roth IRA — $7,000 cap, after-tax contributions, completely tax-free in retirement. Eligibility phases out at higher incomes. Best opened alongside a SEP IRA, not instead.
Many self-employed women open a SEP IRA and a Roth IRA in the same year — they're separate accounts with separate limits.
How to open a SEP IRA in 3 steps
- Pick a brokerage. Fidelity, Schwab, and Vanguard all offer SEP IRAs with zero account fees and no minimums. The application takes ~15 minutes online.
- Fund it. Transfer from your business or personal bank account. You can fund the prior tax year up until your tax filing deadline (including extensions) — which means a SEP IRA opened in March 2026 can still count for 2025.
- Invest it. Cash sitting in a SEP IRA earns nothing. Buy a broad index fund — an S&P 500 fund (FXAIX, VFIAX) or total US market fund (VTI, FZROX) is the standard one-fund starting point. Set future contributions to auto-invest.
Common mistakes
- Forgetting to actually invest the cash.Funding the account is step one; buying funds is step two. Money parked in the settlement account is just expensive savings.
- Over-contributing. If your profit ends up lower than estimated, you can over-contribute and trigger a 6% excise tax. Wait until your numbers are final, or contribute conservatively and top up later.
- Skipping the Roth IRA. A SEP IRA is pre-tax. Having some tax-free retirement money in a Roth gives you flexibility decades from now.
- Not adjusting after good years. Your SEP IRA contribution scales with profit. A great freelance year is the moment to max it out, not a reason to ignore it.
When a SEP IRA isn't the right answer
If you have W-2 employees other than your spouse, a SEP IRA requires you to contribute the same percentageof compensation for them as you do for yourself — which can get expensive fast. A SIMPLE IRA or Solo 401(k) structure usually fits better once you have staff. And if your self-employment income is small ($5–10K/year of side work), a Roth IRA on its own is simpler and gives you tax-free growth.
Demi is building exactly this kind of decision into the product — modelling how a SEP IRA, Roth IRA, or Solo 401(k) actually changes your retirement trajectory given your real income, life stage, and goals. So you can pick the right account with numbers in front of you, not a gut feel.