SEP IRA Calculator (Self-Employed Contribution Limit)

Enter your annual self-employment net profit or W-2 compensation to estimate the maximum contribution you can make to a U.S. SEP IRA. Uses the effective 20% rate for self-employed individuals and 25% for W-2 compensation.

What is a SEP IRA?

A SEP IRA (Simplified Employee Pension IRA) is a U.S. retirement account designed for self-employed individuals and small businesses with few employees. It allows for much larger contributions than a Traditional or Roth IRA, but only the employer (or the self-employed individual themselves) can contribute — employees cannot make their own contributions to a SEP IRA.

The contribution limit is calculated as 25% of compensation, up to an annual dollar limit — but the calculation for a self-employed individual's own contribution is more complex. Because the contribution itself reduces the business income it is based on, the IRS provides a simplified formula using an effective rate of 20% to resolve this circular calculation. This tool handles both the self-employed (sole proprietor) case and the employee/owner (W-2 compensation) case to estimate your maximum contribution.

How to use this tool

Choose your contributor type Select whether you are contributing as a self-employed individual or based on W-2 compensation as an employee or business owner
Enter your annual net profit if self-employed Use the net profit after business expenses, as reported on Schedule C
Enter any W-2 wages already earned this year This is used to correctly estimate the remaining Social Security wage-base room if you also have outside wage income
Enter your annual W-2 compensation if an employee/owner This is the salary paid by the business, which forms the basis for the 25% contribution limit

Tips for getting more out of it

Only the employer can contribute to a SEP IRA. Even as a self-employed individual, you cannot make an additional out-of-pocket contribution in the capacity of an "employee."
If you also participate in a 401(k) or similar plan elsewhere, be aware that the annual dollar limit ($72,000 for 2026) is tracked in aggregate across account types, so avoid over-contributing.
The SEP IRA contribution deadline is not December 31, but your tax filing deadline including extensions (as late as mid-October of the following year) — notably later than for a Traditional or Roth IRA.
This tool provides a simplified estimate. For an exact contribution limit, consult a tax professional or use the worksheets in the latest edition of IRS Publication 560.

Common use cases

Maximize tax-advantaged retirement contributions as a sole proprietor

Compare the larger SEP IRA contribution room against a Traditional or Roth IRA to increase your deductible business income

Estimate employer contributions after incorporating (e.g. S-corp)

If you pay yourself W-2 compensation after incorporating, check roughly how much your business can contribute

Plan retirement savings alongside a 401(k) or IRA

Combine this with money.wealth.401k_calculator and money.wealth.ira_calculator to plan a contribution strategy across multiple retirement accounts

Glossary

SEP IRA: Short for Simplified Employee Pension IRA, a retirement account designed for self-employed individuals and small businesses. Only the employer can contribute, and contribution limits are much higher than a standard IRA.
Self-Employment Tax: The combined Social Security and Medicare tax paid by self-employed individuals. Regular employees split this cost with their employer, but the self-employed pay both halves (15.3% total).
92.35% adjustment: A factor applied to net business profit when calculating self-employment tax, to exclude the portion that represents the employer's share before it is taxed.
Effective rate (20%): A self-employed individual's own SEP IRA contribution is technically limited to 25% of net earnings, but because the contribution reduces its own base, the IRS provides an algebraically resolved effective rate of 20% applied to net earnings.
Annual limit: In addition to the 25%-of-compensation rule, SEP IRA contributions are also subject to an absolute annual dollar limit that is adjusted periodically ($72,000 for 2026).
Compensation cap: The compensation used as the basis for the 25% contribution calculation is itself capped ($360,000 for 2026); any compensation above this cap cannot be used in the calculation.

Frequently asked questions

A SEP IRA can only be funded by the employer (or the self-employed individual), and the contribution limit scales with compensation, reaching up to $72,000 for 2026. A Traditional or Roth IRA, by contrast, is funded by the individual and is limited to roughly $7,500-$8,600.

Because the contribution itself reduces the net business income it is based on, applying 25% directly to net earnings creates a circular calculation. The IRS provides a simplified formula that resolves this circularity, applying an effective rate of 20% to net earnings after the self-employment tax adjustment.

Yes, contribution limits are tracked separately for each account type, so you can use multiple retirement accounts if you meet the eligibility requirements. Note that if you have multiple SEP IRA accounts, the annual limit is tracked in aggregate across all of them.

A business owner must contribute the same percentage of compensation to every eligible employee's SEP IRA as they contribute for themselves. You cannot favor specific employees over others — this is one of the key constraints of the SEP IRA program.

Side Note — The complexity hiding behind a "simplified" plan

The "Simplified" in Simplified Employee Pension refers to how much lighter the administrative burden is compared to traditional pension plans, when the underlying tax law was enacted in 1978. Indeed, a SEP IRA requires no complex annual filings and can be established with a single standardized form at a brokerage — a genuinely simple option for small business owners even today.

The one glaring exception is the contribution calculation for a self-employed individual's own contribution. Because the contribution itself reduces the income it is based on, arriving at an exact figure without the IRS's official worksheet is surprisingly difficult — a paradox for a plan named "Simplified." The 20% effective rate, rather than the nominal 25%, is simply the result of solving this circular equation algebraically, and it takes an entire chapter of IRS guidance to fully explain.

Japan has similar programs aimed at self-employed individuals and small business owners, such as the Small Enterprise Mutual Aid System (Shoukibo Kigyou Kyousai) and the National Pension Fund. Both support retirement savings for the self-employed, but in contrast to the U.S. system, their contribution limits are based on simpler flat or fixed-rate structures rather than a formula tied directly to variable income.

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