Form 5305-SEP is the IRS model agreement an employer signs to set up a simplified employee pension, or SEP IRA. You don't file it with the IRS. You fill in every blank, keep it with your records and give each eligible employee a copy. Using it means no IRS approval or determination letter is needed.
The form is still the December 2004 revision, and its printed dollar limits are old figures marked for cost-of-living increases. The current limits below come from IRS Publication 560 for 2025 returns, as of October 2026.
What the form does
A SEP is a written plan that lets you contribute to a traditional IRA for each employee, and for yourself if you're self-employed. Contributions go straight to an IRA set up by or for each person at a bank, insurer or other qualified institution. Form 5305-SEP is the written plan. Article I sets who's eligible and Article II sets the contribution rules.
When you can't use the model form
- You already maintain another qualified retirement plan. Another SEP is fine.
- An eligible employee doesn't have an IRA yet.
- You use leased employees.
- You're part of an affiliated service group, controlled group or businesses under common control, unless everyone eligible across the group is covered.
- You won't pay the cost of the contributions.
- You want employees to make elective salary deferrals. That needs Form 5305A-SEP or a non-model SEP, and SEPs allowing deferrals can't be set up after 1996.
The IRA has to be a model traditional IRA on an IRS form, or a master or prototype traditional IRA with a favorable opinion letter. SEP contributions can't go into a Roth IRA or a SIMPLE IRA.
Article I: who has to be covered
Under the 2025 rules in Publication 560, an eligible employee is someone who's at least 21, has worked for you in at least 3 of the last 5 years, and has received at least $750 in compensation from you in 2025. For 2026 that pay figure is $800. You can be more generous than this, but not stricter.
Service means any work for any period, however short, so a summer job three years ago counts. The boxes in Article I also let you choose whether to cover union employees whose benefits were bargained for, and nonresident aliens with no US-source income from you.
Article II: the contribution rules
| Rule | Limit for 2025, as of October 2026 |
|---|---|
| Maximum for any one person | The smaller of $70,000 or 25% of compensation ($72,000 for 2026) |
| Compensation you can count | Up to $350,000 ($360,000 for 2026) |
| Pay below which an employee can be left out | $750 ($800 for 2026) |
Every eligible employee gets the same percentage of pay. Contributions can't favor highly compensated employees and can't be offset against FICA. If you're self-employed, your own contribution is worked out on net earnings, not wages, so use the self-employed worksheets in Publication 560 rather than a flat 25%.
You choose the amount each year
Contributions are discretionary. You don't have to contribute every year, but in any year you do, it has to go to every eligible employee who worked during that year, even one who died or quit before you paid. Contributions must be cash, check or money order, not property.
Deadlines
You can set up a SEP any time up to the due date, including extensions, of your business return for the year. Contributions for a year are also due by that return's due date with extensions, and they're deductible for the tax year in which the calendar year ends.
Making the agreement count
- Make sure an IRA exists for every eligible employee.
- Fill in every blank on the form without changing the wording.
- Give each eligible employee a copy of Form 5305-SEP.
- Add a statement that other traditional IRAs may have different returns and terms.
- Explain that you'll send any amendment within 30 days with a written explanation, and report each contribution by the later of January 31 of the following year or 30 days after it's made.
Publication 560 says using the model form will usually relieve you from filing annual information returns for the plan. That's a real difference from qualified plans, where Publication 560 describes the annual Form 5500 series of returns.
Where your own deduction goes
Publication 560 says sole proprietors deduct contributions for their employees on Schedule C or Schedule F, partnerships on Form 1065 and corporations on Form 1120 or 1120-S. Your own SEP contribution as a self-employed person goes on the Schedule 1 line for self-employed SEP, SIMPLE and qualified plans.
Excess contributions and older workers
Publication 560 treats contributions above the limit as excess contributions. They're included in the employee's income for the year and treated as the employee's own contributions to their SEP IRA, which then has its own consequences. Unlike traditional IRA contributions before 2020, SEP contributions can be made for participants over age 70 and a half, so an older employee doesn't drop out of coverage on age alone.
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The verdict
Form 5305-SEP suits a small business that wants a retirement plan with almost no admin. Its catch is the coverage rule: once someone's worked for you in 3 of the last 5 years and earned $750 in 2025, they're in. Check that before you sign, then use Publication 560's limits, not the 2004 figures printed on the form.
Readers often ask about this next, and our clergy self-employment exemption explainer answers.
Frequently asked questions
Do I file Form 5305-SEP with the IRS?
No. You complete it, keep it with your records and give a copy to each eligible employee.
What's the SEP contribution limit for 2025?
As of October 2026, the smaller of $70,000 or 25% of compensation, rising to $72,000 for 2026.
Which employees must be in a SEP?
Anyone at least 21 who has worked for you in 3 of the last 5 years and earned at least $750 from you in 2025.
When is the deadline to set up a SEP?
Any time up to the due date of your business return for the year, including extensions.
Can I contribute to my own SEP IRA if I'm self-employed?
Yes. Publication 560 says a self-employed person can contribute to their own SEP IRA, with the limit worked out on net earnings from self-employment.
Are SEP contributions required every year?
No. Contributions are discretionary, but in any year you make them, every eligible employee who worked that year must get the same percentage of pay.
Can I use Form 5305-SEP alongside a 401(k)?
No. You can't use the model form if you maintain any other qualified retirement plan, though another SEP is allowed.
