What is the SEP IRA contribution limit for 2026?

The 2026 SEP IRA contribution limit is the lesser of 25% of compensation or $72,000. For self-employed individuals, the effective rate is approximately 20% of net self-employment income after deducting one-half of self-employment tax.

Why is the SEP IRA rate 20% for self-employed instead of 25%?

When you're self-employed, you're both employer and employee. The 25% is calculated on compensation NET of the contribution itself. Algebraically, this works out to 25%/(1+25%) = 20% of pre-contribution net earnings. You also reduce net earnings by half of self-employment tax first.

Can I contribute to both a SEP IRA and a Roth IRA?

Yes. SEP IRA contributions don't affect your ability to make Traditional or Roth IRA contributions. However, SEP IRA participants are considered 'covered by a workplace plan' for Traditional IRA deduction phase-out purposes.

SEP IRA Contribution Calculator 2026

Calculator

2026 SEP IRA Contribution Calculator

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Age 45

I'm self-employed (sole proprietor / single-member LLC)

Toggle off if you're a W-2 employee whose employer offers a SEP IRA.

Net self-employment income

For self-employed: net SE earnings after 1/2 SE tax deduction (Schedule SE line 13).

Contribution rate 20%

Default 20% — the effective max for self-employed. W-2 employees can go up to 25%.

Tax estimate

Federal tax bracket

Limits sourced from IRS.gov. For self-employed, this calculator uses simplified formulas; consult IRS Pub 560 or a tax professional for exact figures.

Your 2026 SEP IRA breakdown

Compensation base —

Effective rate —

Maximum allowed contribution —

Your SEP IRA contribution —

Estimated federal tax savings —

Net out-of-pocket cost —

Your contribution vs $72K cap — / —

What this means

Enter your income above to see your SEP IRA contribution potential.

Reference

2026 SEP IRA Limits

Provision	2026 limit	Notes
Maximum contribution (dollar cap)	$72,000	Same as §415 annual additions limit
Maximum % of compensation (W-2)	25%	For employees with W-2 wages
Effective % for self-employed	~20%	= 25% / 1.25 of net SE earnings
Compensation limit	$360,000	Maximum comp used to calculate 25%
Super catch-up (age 60-63)	$11,250	SECURE 2.0 — only applies if SEP IRA is set up as a SARSEP (pre-1997)
Minimum compensation for eligibility	$750	Per employee, per year

Why 20% (not 25%)?

The Self-Employed SEP IRA Math

The 25% rate applies to compensation AFTER the SEP IRA contribution is deducted. For a W-2 employee, this works naturally — the employer adds 25% on top of wages. For self-employed individuals, the contribution reduces your net earnings, creating a circular calculation.

The algebraic solution:

              Net earnings = SE income − ½ SE tax

              Contribution = 25% × (Net earnings − Contribution)

              → Contribution = Net earnings × 25%/125% = Net earnings × 20%

Bottom line: as a sole proprietor, you contribute ~20% of net SE earnings, capped at $72,000.

FAQ

Common Questions

Who can open a SEP IRA?

Any self-employed individual, sole proprietor, partnership, or small business owner can open a SEP IRA. There are no employee count restrictions. If you have employees who meet eligibility requirements (age 21, worked 3 of last 5 years, earned at least $750 in 2026), you must contribute the same percentage of pay for all eligible employees as for yourself.

SEP IRA vs Solo 401(k) — which is better?

For self-employed individuals with no employees, the Solo 401(k) usually allows higher contributions because you can contribute both as employee ($24,500) and employer (~20% of net SE). SEP IRA is simpler — no annual Form 5500 filing — and easier to set up. See full comparison →

When is the deadline to contribute to a SEP IRA?

You have until your business tax filing deadline (including extensions) to establish and fund a SEP IRA for the prior year. For most businesses, that's April 15 of the following year, or October 15 with an extension. This is one of the SEP IRA's biggest advantages — you can wait until you know your final profit.

Can SEP IRA contributions be Roth?

Under SECURE 2.0, SEP IRAs can now offer a Roth option (effective 2023+), but implementation depends on your plan provider. Most providers still only offer traditional (pre-tax) SEP contributions. Roth SEP contributions are made with after-tax dollars but grow tax-free.