Work out the most you can put into a SEP IRA this year. Self-employed people use the reduced 20% rate on net earnings after the self-employment tax deduction; employees and S-corp owners get up to 25% of W-2 pay, all capped at the yearly IRS limit.
Last updated:
Who is the contribution for?
$
Schedule C line 31 (or partnership SE income).
$
Reduces the Social Security part of SE tax.
$
For an S-corp owner this is your salary, not distributions.
%
25% is the maximum.
%
Federal + state marginal rate.
Enter your values to see the result.
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How to use the SEP IRA Contribution Calculator
Pick the tax year.
Choose self-employed or employee. S-corp owners use the employee option with their W-2 salary.
Enter net profit or W-2 pay, plus any W-2 wages from another job if you are self-employed.
Keep the plan rate at 25% for the maximum, or enter your plan's lower rate.
Press Calculate SEP IRA and follow the worksheet steps.
SEP IRA formula for the self-employed
This follows the Deduction Worksheet for Self-Employed in IRS Publication 560:
Net SE earnings = net profit × 92.35%
SE tax = 12.4% × earnings up to the Social Security wage base + 2.9% × all earnings
Adjusted net earnings = net profit − ½ SE tax
Reduced rate = plan rate ÷ (1 + plan rate); 25% becomes 20%
Contribution = the smallest of adjusted earnings × reduced rate, the compensation limit × plan rate, and the dollar limit
Example (2026): $120,000 of net profit. SE earnings are $110,820 and SE tax is $16,955.46. Half of that ($8,477.73) is deducted, leaving $111,522.27. 20% of that is a maximum SEP IRA contribution of $22,304.45.
SEP IRA limits by year
Year
Max contribution
Compensation limit
Social Security wage base
2026
$72,000
$360,000
$184,500
2025
$70,000
$350,000
$176,100
2024
$69,000
$345,000
$168,600
Sources: IRS cost-of-living adjustment notices for retirement plans and SSA wage base announcements.
Tips
You can choose a different contribution rate each year, including 0%, so a SEP works well for uneven income.
SEP contributions go into a traditional IRA in your name. Since 2023 a plan may allow Roth SEP contributions, which are taxable now.
If you also have a 401(k) at a day job, your SEP limit is separate from that plan's employee deferral limit.
Frequently asked questions
What is the SEP IRA contribution limit for 2026?
The lesser of 25% of compensation or $72,000 for 2026 (up from $70,000 in 2025). Only the first $360,000 of compensation counts in 2026 ($350,000 in 2025). There is no catch-up contribution for age 50 or older in a SEP IRA.
Why is it 20% and not 25% for the self-employed?
For yourself, compensation is net earnings after the deduction for half of self-employment tax and after the SEP contribution itself. Solving 25% of (earnings − contribution) gives 25% ÷ 1.25 = 20% of net earnings after the half-SE-tax deduction, which is the reduced rate IRS Publication 560 uses.
How do I calculate SEP IRA contributions as an S-corp owner?
Use your W-2 salary from the S corporation only. Distributions are not compensation. The corporation can contribute up to 25% of your W-2 wages, capped at the annual dollar limit.
When is the SEP IRA deadline?
You can set up and fund a SEP IRA for a year up to your business's tax filing deadline, including extensions. For a sole proprietor that is normally April 15 of the next year, or October 15 with an extension.
Does a SEP IRA contribution lower self-employment tax?
No. It is deducted on Form 1040 Schedule 1 and lowers income tax, but self-employment tax is figured on net profit before the SEP deduction.
Do I have to contribute for employees?
Yes. If you have eligible employees, you must contribute the same percentage of compensation for each of them as for yourself. Eligibility can require age 21, three of the last five years of service and a small minimum pay.
Is a solo 401(k) better than a SEP IRA?
Often yes at lower incomes, because a solo 401(k) adds an employee deferral on top of the same employer contribution. At very high incomes both can reach the same overall limit. Compare with the solo 401(k) calculator.
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