If you’re a real estate investor, you’ve probably heard plenty about using a self-directed IRA to buy property. What gets talked about far less is which retirement account you use to build up those dollars in the first place. For many people who earn their living in real estate, the answer hiding in plain sight is the SEP IRA.
It’s one of the simplest retirement plans available to the self-employed, and it comes with a feature most people don’t know about: you can often open and fund it after the tax year has already ended. Let’s walk through why that matters, and who it actually works for.
First, What Is a SEP IRA?
SEP stands for Simplified Employee Pension. It’s a retirement plan designed for self-employed individuals and small business owners. Contributions are made by the business, are generally tax-deductible, and grow tax-deferred inside the account. Compared to other employer plans, the paperwork is light and there’s no annual filing requirement for the plan itself in most cases.
The contribution potential is where it gets interesting. A SEP allows contributions based on a percentage of your compensation from the business, up to an annual cap set by the IRS. For a strong earning year, that can be far more than you could put into a Traditional or Roth IRA on your own.
The Part People Overlook: Timing
Most retirement plans need to be in place before the end of the year you want to contribute for. The SEP is different. In general, you can establish a SEP and make contributions for a given tax year all the way up to your tax filing deadline, including extensions.
In practical terms, that means you can look back at how your year actually went, see what your income really was, and then decide how much to put away. No guessing in December. No scrambling to open an account before the holidays.
And right now, that’s especially relevant. If you filed an extension on your 2025 personal return, your filing deadline is October 15, 2026, which may mean there’s still time to set up a SEP and make a 2025 contribution. If that describes you, it’s worth a quick call with your tax advisor this week.
Here’s the Catch: It Has to Be Earned Income
This is where many real estate investors get tripped up, so it’s worth being clear. SEP contributions are based on earned income from self-employment. Rental income from properties you own is generally considered passive, which means it usually doesn’t count, even if you own a lot of doors and manage them yourself.
So who does the SEP work well for in the real estate world? Typically, it’s people whose real estate activity is their business. Think real estate agents and brokers, property managers who earn fees, house flippers and wholesalers, contractors and rehabbers, and consultants or coaches in the industry. If you receive a 1099 or run a business that generates active income, a SEP may be a strong fit. If most of your income comes from rents, other strategies may make more sense, and your tax advisor can help you sort out which applies.
Where Self-Directing Comes In
Once money is in a SEP IRA, it doesn’t have to sit in mutual funds. With a self-directed SEP IRA, you can invest in the same kinds of alternative assets available in any self-directed account: rental property, private loans, notes, LLCs, and more. For investors who already understand real estate, that means your retirement dollars can work in an asset class you know.
A few ground rules apply. The property belongs to the IRA, not to you personally, so you can’t live in it, vacation in it, or rent it to close family members. Income and expenses flow through the account, not your personal checking. And certain transactions with yourself or related parties are prohibited. None of this is complicated once you understand it, but it’s important to get right from the start.
A Newer Option Worth Knowing About
Recent legislation opened the door for SEP contributions to be made on a Roth basis, meaning you’d pay tax now in exchange for tax-free growth later. Availability of this option depends on the plan and the provider, and it’s still relatively new in practice, so it’s worth asking about rather than assuming either way.
One More Thing If You Have Employees
A SEP isn’t only for solo operators, but if your business has eligible employees, they generally have to receive contributions at the same percentage you give yourself. For a one-person business, that’s not an issue. For a growing team, it’s a planning conversation to have before you open the plan.
Is a SEP Right for You?
It might be worth a closer look if you earn self-employment income from real estate, you had a strong year and want a meaningful deduction, you like the idea of deciding how much to contribute after you know your numbers, and you’d rather invest your retirement savings in real estate than in the stock market.
It’s not the only option. A Solo 401(k), for example, can allow higher contributions at certain income levels and offers features a SEP doesn’t. The right plan depends on your income, your business structure, and your goals.
The Bottom Line
The SEP IRA isn’t really a loophole. It’s a straightforward plan with a flexible timeline that a lot of real estate professionals simply never hear about. If you earn active income in the industry, it can be one of the easiest ways to put more toward retirement and invest it in what you know.
Curious whether a self-directed SEP IRA fits your situation? Reach out any time at hello@midatlanticira.com, or join us on an upcoming National Strategy Call. We’d love to help you understand your options alongside your tax advisor.
MidAtlantic IRA, LLC is a self-directed IRA administrator and custodian, not an investment advisor. This article is for educational purposes only and is not tax, legal, or investment advice. Please consult your own tax and legal professionals before making decisions about your accounts.