Calculate your maximum SEP-IRA contribution for 2026 — with proper half-SE-tax handling and the $70k cap.
SEP-IRA contributions for sole proprietors aren't simply 25% of profit — the half-SE-tax deduction makes the effective rate closer to 20%. This calculator handles the math correctly for both sole prop and S-corp owners.
Direct answers to the most common questions, in plain language. Skim if you're in a hurry; dig deeper below.
Up to 25% of net self-employment income, max ~$70,000.
The 2026 SEP-IRA limit is 25% of your net earnings (after the half-SE-tax deduction), or $70,000 — whichever is less. For sole proprietors and LLCs taxed as sole proprietorships, the effective rate is about 20% of net profit.
Same contribution limit, different rules.
Both have a $70,000 2026 cap. Solo 401(k) allows employee deferrals ($23,500 + $7,500 catch-up) AND profit-sharing, so lower-income self-employed can save more. SEP-IRA is simpler — one calculation, one form.
Yes — contributions reduce your taxable income now.
SEP-IRA contributions are 100% tax-deductible on your business or personal taxes (Schedule C → 1040). They lower your taxable income dollar-for-dollar in the year contributed.
By your tax filing deadline, including extensions.
You can establish AND fund a SEP-IRA up until your tax return filing deadline (April 15, or October 15 with extension). Many self-employed people open one in March/April based on the prior year's income.
The mechanics in short answers — no jargon, no upsell.
Specifically, 25% of (net business profit − half of self-employment tax). For most sole props, this works out to about 20% of net profit due to the half-SE deduction.
You can never contribute more than the annual cap regardless of income. At 25% effective rate, that means $350,000 of pre-deduction income maxes out the SEP.
Every dollar contributed reduces your taxable income by a dollar. At a 32% marginal rate, a $50,000 SEP contribution saves $16,000 in federal taxes (plus state).
Like a traditional IRA, SEP grows without tax drag and is taxed at withdrawal. RMDs begin at age 73.
Designed so anyone can model their situation in under a minute, with or without a finance background.
Calculated correctly: 25% of net SE income, capped at $70k.
See your federal + state tax savings from a maxed SEP contribution.
Side-by-side — see which lets you save more given your income.
Project the SEP portfolio out 20–40 years at expected returns.
Properly handles the half-SE-tax deduction and the 20% effective rate.
See exactly how much time you have to fund this year.
Everything you might ask before, during, or after using this tool.
Yes. SEP-IRA limits are separate from Roth IRA limits ($7,000 in 2026, $8,000 with catch-up). Many self-employed people max both. Note: SEP contributions can affect Roth IRA contribution eligibility at high incomes via MAGI calculation.
You must contribute the SAME percentage of compensation to all eligible employees. This is the biggest SEP drawback for businesses with staff. Solo 401(k) is genuinely "solo" — only for owner-only businesses (and spouses).
No. SEP contributions are limited by net self-employment income. With $0 net SE income, you cannot contribute. This is why SEP is most useful for high-income self-employed people, not bootstrapping startups.
For S-corp owners taking W-2 wages: it's exactly 25% of W-2 compensation. For sole proprietors and single-member LLCs: it's 25% of (profit − half SE tax), which works out to about 20% of profit. Both end at the same $70k cap.
Yes. If you have a regular W-2 job with a 401(k) AND a side business, you can contribute to both. The 401(k) employee deferral limit ($23,500) and the SEP-IRA limit ($70,000) are separate — though aggregate "all retirement plans" caps can apply.
SEP-IRAs technically allow catch-up contributions if you're 50+, but only as part of the existing $70k limit — so it doesn't actually let you contribute more. (Unlike 401(k) and IRA, which have separate $7,500 / $1,000 catch-up amounts.)
When your income is high enough that both hit the $70k cap (roughly $350k+ profit), SEP wins on simplicity. Solo 401(k) wins for lower-income self-employed because the employee deferral + match allows you to save more on less profit.
Yes. You can switch from SEP to Solo 401(k) and roll the balance over. This is a common move as income grows and the Solo 401(k)'s additional features (Roth option, larger total contribution at lower income) become attractive.
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SEP = Simplified Employee Pension. It's an IRA designed for self-employed individuals and small business owners.
Contributions are made by the employer (you, in the self-employed case) up to 25% of compensation, capped at $70,000 in 2026.
The contribution is tax-deductible to the business, grows tax-deferred, and is taxed at withdrawal. Standard traditional-IRA tax treatment.
No employee deferrals, no Roth option (traditional only), no plan loans — simpler than a Solo 401(k) but with less flexibility.
For sole proprietors and single-member LLCs (filing as sole prop):
1. Net SE income = Schedule C profit.
2. Half-SE-tax deduction = (net SE income × 0.9235 × 0.153) / 2.
3. Net earnings for SEP = net SE income − half-SE deduction.
4. Max SEP contribution = min(net earnings × 0.25 ÷ 1.25, $70,000) = effectively net earnings × 20%.
For S-corp owners: 25% of W-2 wages, capped at $70k. Simpler math, but you must take W-2 wages first.
Solo 401(k) wins for lower self-employment income because the $23,500 employee deferral lets you save a larger portion of a smaller pie.
SEP wins for very high income (>$350k profit) where both plans hit the $70k cap and SEP's simpler administration matters.
Solo 401(k) also wins if you want Roth contributions (SEP is traditional only), or want to take a loan from your retirement plan.
Switching: you can move from SEP to Solo 401(k) at any time by rolling over the balance.
If you have eligible employees (typically 21+, worked for you 3 of last 5 years, earned $750+ in 2026), you MUST contribute the same percentage of their compensation as you contribute for yourself.
This is the single biggest reason most growing businesses transition from SEP to Solo 401(k) (only for the owner) or to a regular 401(k) plan.
For solo operators (just you, possibly your spouse), this doesn't apply — SEP works fine.
Two short notes worth reading before you trust any number on this page.
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