If you run your own business or freelance, tax season can feel like a marathon that never quite ends. There’s the worry about deadlines, the temptation to maximize every deduction, and, of course, the nagging fear of missing out on some smart ways to save for retirement.
One question that comes up often: Can I still contribute to my SEP IRA if I filed an extension? Let’s explore how tax extensions create an opportunity to maximize your SEP IRA contributions.
What is an SEP IRA?
An SEP IRA (Simplified Employee Pension) is a retirement account designed for self-employed individuals and small business owners, including sole proprietors, LLCs, and partnerships. It offers a streamlined way to set aside money for retirement without the complexity of other employer-sponsored plans.
Here’s why they’re especially appealing:
- High contribution limits
You can contribute up to 25% of your compensation or 20% of your net self-employment income, with a cap of $70,000 for 2025. That’s significantly more than traditional IRAs or Roth IRAs. - Administrative simplicity
SEP IRAs are easy to open and maintain, with minimal reporting requirements and no annual filings for most businesses. - Flexible contributions
You’re not locked into a specific amount each year. You can contribute more when business is strong or skip contributions in slower years without penalty.
For business owners with employees, SEP IRAs can also be a straightforward way to offer retirement benefits. Just keep in mind: if you contribute for yourself, you must contribute the same percentage for eligible employees.
These features make SEP IRAs a strong option for reducing taxable income while steadily building retirement savings.
How Tax Extensions Influence SEP IRA Contributions
A tax extension doesn’t just give you more time to file. It also gives you more time to contribute to your SEP IRA for the previous tax year.
For businesses that file a separate tax return (other than Schedule C), they must file Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns. This form extends the deadline for the business's tax return to September 15.
For most self-employed individuals and small business owners who operate on a calendar year and file their business on the Schedule C, that means:
- Standard deadline: April 15
- Extended deadline (if you file Form 4868): October 15
But here’s the key: you only get this extra time if you actually file the extension. The IRS doesn’t grant it automatically and missing that step means the April deadline still applies.
This extension can offer more than just wiggle room. It gives you time to assess your earnings, smooth out cash flow, and contribute an amount that makes sense for your current financial picture. It turns a stressful deadline into a strategic opportunity.
How do I contribute to my SEP IRA after a tax extension?
If you filed for a tax extension, you still have time to make a SEP IRA contribution for the prior year. But timing and accuracy are key. Here’s how to make sure your contribution is set up and reported properly:
Make Sure Your SEP IRA Plan Is Established by the Extended Deadline
The plan must be officially established (not just funded) before the extension deadline, typically on September 15 or October 15. If you’re unsure whether your SEP IRA is active, confirm with your provider.
Re-Calculate How Much You’re Eligible to Contribute
Generally, you can contribute up to 25% of compensation, up to the annual contribution limit.
For self-employed individuals: The calculation adjusts for self-employment tax, typically around 20% of net self-employment income.
For businesses with employees: Keep in mind that contributions must be proportional for all eligible employees based on their compensation.
Clearly Label Your Contribution
When sending your deposit, clearly indicate to your provider which tax year the contribution applies to (for example, “Tax Year 2025”). This ensures it’s applied correctly for deduction purposes.
Keep Documentation and Report Contributions Properly
Retain account statements and confirmation documents. When filing your tax return, report the SEP IRA contribution accurately to avoid issues with deductions or IRS inquiries.
Why should I take advantage of contributing after a tax extension?
Filing for an extension gives you more flexibility to maximize your retirement planning. Here’s why the extra time can be a smart move:
- Lower your taxable income for last year: SEP IRA contributions made by the extended deadline can still reduce your prior year’s taxable income, potentially lowering your tax bill
- Improve cash flow management: The extension provides more time to secure funds without the pressure of the original April deadline
- Plan with greater precision: With the added months, you can review your financials carefully and work with your tax advisor to calculate the most strategic contribution amount
- Build a larger retirement fund: More time means another opportunity to grow your tax-deferred savings without feeling rushed into a last-minute decision
Avoiding Common Mistakes
While filing for a tax extension gives you more time, it also leaves room for common mistakes. Here’s how to avoid them:
- Worried about missing the establishment deadline?
Confirm with your financial institution that your SEP IRA is fully established (not just funded) before the extended filing date. - Confused about how much you can contribute?
Double-check the current IRS contribution limits and carefully calculate based on your net self-employment income. Consult a tax professional if you’re unsure. - Managing multiple retirement accounts?
Review all your retirement plan contributions together to ensure you stay within IRS limits and avoid excess contributions. - Short on cash before the original tax deadline?
Use the extension period strategically to manage your cash flow and secure the funds needed for your SEP IRA contribution.
How can I use SEP IRA contributions as part of a bigger tax and retirement strategy?
Contributing to your SEP IRA after filing for an extension also provides an opportunity to make more strategic financial decisions.
- Look back at last year: You might be able to make a more strategic contribution after reviewing your actual income.
- Benefit your employees: If you have a team, employer SEP contributions can help you attract and keep good people.
- Coordinate with other moves: Ensure your SEP contribution aligns with your broader retirement and tax planning strategies.
The Bottom Line
Filing a tax extension isn’t a setback, it’s a chance to make a SEP IRA contribution that lowers your tax bill and boosts your retirement savings. Just be sure the account is open, the contribution is labeled for the right year, and the timing aligns with IRS deadlines.
Not sure what to do next? Schedule a call with DiMercurio Advisors. We’ll help you review your SEP IRA strategy, avoid costly missteps, and make sure you’re maximizing the full advantage of your extension.
