SEP IRA Calculator
Calculate your 2026 SEP IRA contribution limit with the current IRS rules. Uses the correct 20% effective rate for self-employed individuals (accounting for the 1/2 SE tax deduction) and 25% for W-2 employees.
Last updated: April 2026 · Source: IRS 2026 retirement plan limits
Schedule C net profit (line 31)
Frequently asked questions
What is the 2026 SEP IRA contribution limit?
For 2026, the IRS increased the SEP IRA maximum to $72,000 (up from $70,000 in 2025). This is the absolute cap — the actual contribution is limited to 25% of eligible compensation (for W-2 employees) or approximately 20% of net self-employment income (after deducting half of self-employment tax). The compensation cap used for the calculation also increased to $360,000 for 2026, up from $350,000. There are no catch-up contributions for SEP IRAs.
How is SEP IRA contribution calculated for self-employed?
The math is trickier than it looks. Start with your net earnings from self-employment (Schedule C line 31). Subtract the deductible half of self-employment tax (calculated on Schedule SE). Then multiply that number by the "effective rate" of 20%. The 20% comes from the formula 0.25 / (1 + 0.25) = 0.20 — because the contribution itself reduces your compensation base. For a 25% W-2 employee contribution, the equivalent for self-employed is 20% of net-after-half-SE-tax earnings.
How does SEP IRA compare to Solo 401k?
Solo 401k is almost always better if you are the only employee. A Solo 401k lets you contribute $24,500 as an employee PLUS 25% of compensation as an employer — meaning you can hit the $72,000 total cap at a much lower income than a SEP IRA can. Example: at $100,000 self-employment income, SEP IRA caps you at about $18,600 (20% of net). Solo 401k gets you to $43,100 ($24,500 + ~$18,600). The main reason to pick SEP over Solo 401k is simplicity — SEP requires no annual Form 5500 filing below $250K balance, Solo 401k does.
Who is eligible for a SEP IRA?
Any business can establish a SEP IRA — sole proprietors, partnerships, LLCs, S-corps, C-corps, and self-employed individuals. If you have employees, they must all be included on the same terms. IRS eligibility rules require employees to be: age 21 or older, have worked for the business in any capacity during at least 3 of the last 5 years, and earned at least $800 in compensation in 2026 (up from $750 in 2025). Employers can set less strict rules but not more strict.
When is the SEP IRA contribution deadline?
SEP IRA contributions for a given tax year can be made up until the business tax filing deadline — including extensions. For most self-employed filers, that means you can contribute for 2026 as late as October 15, 2027 if you file for an extension. This is more flexible than traditional or Roth IRAs, which have a hard April 15 deadline. This also means you can see your full year's income before deciding how much to contribute, a major advantage for variable-income business owners.
Are SEP IRA contributions tax deductible?
Yes — SEP IRA contributions are tax-deductible as a business expense for employers, and reduce self-employment income for sole proprietors. Contributions grow tax-deferred, and withdrawals in retirement are taxed as ordinary income, just like a traditional IRA. This is different from a Roth IRA or Roth 401k, where contributions are made with after-tax money but withdrawals are tax-free. SECURE 2.0 technically authorized Roth SEP IRAs, but most custodians have not yet rolled out the Roth option.
Can I have both a SEP IRA and a traditional IRA?
Yes. Your SEP IRA employer contribution does not count against your $7,500 traditional IRA limit ($8,600 if 50+). However, being covered by a SEP IRA may affect whether your traditional IRA contributions are deductible. For 2026, if you or your spouse is covered by a workplace retirement plan (including a SEP IRA), the traditional IRA deduction phases out at higher income levels. You can still contribute, but the deduction may be limited or eliminated.
What happens to my SEP IRA if I hire employees?
Under IRS rules, eligible employees must be included in the SEP on the same percentage-of-compensation basis as the owner. If you contribute 20% of your own compensation, you must contribute 20% of each eligible employee's compensation. This can become expensive as you grow. Many business owners switch to a traditional 401k or a Safe Harbor 401k once they hire employees, because those plans allow more flexibility in setting employee contribution levels.
Can I roll a SEP IRA into another retirement account?
Yes. SEP IRAs are a type of traditional IRA for tax purposes, so they can be rolled over into another traditional IRA, a Solo 401k (if you have one), or even a rollover IRA at a new custodian. The rollover is tax-free if done as a direct trustee-to-trustee transfer. If you receive the money personally, you have 60 days to deposit it into the new account or face taxes and potential penalties. You can also roll SEP IRA funds into a Roth IRA via a Roth conversion, which is a taxable event.
What if I have too little income for a SEP IRA?
SEP IRAs have no minimum contribution — you can contribute $0 in years with low or no income. This makes SEP IRAs attractive for freelancers and consultants with highly variable income. You are not required to contribute every year, and there is no penalty for skipping years. The downside is that the IRA contribution limit ($7,500 individual for 2026) may actually be higher than your calculated SEP limit at very low income levels. At $25,000 net self-employment income, your SEP limit is roughly $5,000, but your regular IRA limit is $7,500.
Does SEP IRA affect Social Security or Medicare taxes?
No. SEP IRA contributions do NOT reduce your self-employment tax (SE tax). SE tax is calculated on your gross net earnings before retirement plan contributions. This is different from a 401k, where pre-tax salary deferrals reduce your wages for income tax purposes but not FICA tax. For self-employed, the SE tax is 15.3% on the first $184,500 of net earnings in 2026 (Social Security portion) plus 2.9% on everything (Medicare portion). SEP contributions lower your income tax but not SE tax.
What are the downsides of a SEP IRA?
Three main drawbacks: (1) No catch-up contributions for those 50+ — unlike IRAs, 401ks, and other plans. (2) Employer-only contributions — employees cannot make their own salary deferrals. (3) Uniform contribution percentage required across all eligible employees, including the owner — so if you want to contribute 25% for yourself, you must also contribute 25% for each employee. If you are the only employee (no staff), Solo 401k is almost always a better choice because it lets you hit the $72,000 cap at lower income levels thanks to the $24,500 employee deferral.
Data sources: IRS 2026 retirement plan contribution limits; IRS Publication 560 (Retirement Plans for Small Business); Fidelity and Vanguard SEP IRA 2026 guides.
Last updated: April 2026. SEP IRA limits are updated annually by the IRS each fall for the following tax year.
Disclaimer: This calculator provides estimates for educational purposes only and is not tax or financial advice. Self-employment retirement calculations can be complex. Consult a CPA or qualified tax advisor.