A Simplified Employee Pension IRA (SEP-IRA) is a retirement plan for self-employed individuals and small business owners. The employer makes tax-deductible contributions that grow tax-deferred. The 2026 limit is $72,000 or 25% of compensation, whichever is less.

SEP-IRA Calculator

Q: How is the SEP-IRA contribution calculated for self-employed individuals?

Take your net SE income, subtract the deductible half of self-employment tax, then multiply by 25%. The effective rate is approximately 20% of original net SE income. For example, $120K net income yields a max SEP contribution of about $27,881.

Q: What's the difference between a SEP-IRA and a Solo 401(k)?

Both allow 25% employer contributions. Solo 401(k) adds an employee deferral of $23,500 (2026) plus catch-up contributions for age 50+ ($7,500) or 60-63 ($11,250 SECURE 2.0). For most self-employed under ~$280K income, Solo 401(k) allows higher total contributions.

Calculate your maximum SEP-IRA contribution, compare SEP vs Solo 401(k), and project your retirement savings growth. Step-by-step formula with 2026 limits.

Calculate your maximum SEP-IRA contribution based on self-employment income

Net self-employment income

Schedule C net profit (after business expenses)

Filing status

Your age

SEP has no catch-up contributions at any age

State income tax rate

CA: 9.3%, NY: 6.85%, TX/FL: 0%

—

Try another scenario

How to Use This Calculator

Contribution Limit tab

Enter your net self-employment income (Schedule C net profit) and filing status. The calculator walks through the full SEP-IRA formula step by step: SE tax, deductible half, adjusted net, and 25% employer contribution. Expand "More options" to adjust your age and state tax rate.

SEP vs Solo 401(k) tab

See both plans side by side with the same SE income. The Solo 401(k) adds an employee deferral ($23,500 in 2026) plus catch-up contributions if you're 50+. Key insight: if your SE income is under ~$200K, the Solo 401(k) almost always allows more because of that extra employee deferral.

Growth Projection tab

Project your SEP-IRA balance over time. The annual contribution auto-fills from the Contribution Limit tab, or enter manually. Compare tax-deferred growth vs a taxable account to see the real advantage of sheltering income in a SEP-IRA.

Share your result

Every input is encoded in the URL. Click Share to send your exact scenario to a business partner, CPA, or financial advisor.

The SEP-IRA Contribution Formula

The SEP-IRA contribution formula has a circular dependency that the IRS resolves with this multi-step process:

1. SE taxable income = Net SE Income × 92.35%
2. SE tax = SS tax (12.4% on first $184,500) + Medicare tax (2.9% on all)
3. Deductible half of SE tax = SE tax ÷ 2
4. Adjusted net = Net SE Income − Deductible half of SE tax
5. SEP contribution = 25% of Adjusted net (capped at $72,000)

Effective rate ≈ 20% of net SE income

The 25% applies to adjusted net income (after the SE tax deduction), which is why the effective rate is approximately 20% of your original net SE income. This is not a rounding error — it's how the IRS formula works.

Example

Priya — Freelance UX Designer, 38, Portland OR

Priya earns $120,000 net self-employment income (Schedule C). She files Single and lives in Oregon (state tax ~9%). Here's her SEP-IRA calculation step by step:

Step-by-step SEP-IRA calculation

Net SE income$120,000

SE taxable income (92.35%)$110,820

SS tax (12.4% on $110,820)$13,742

Medicare tax (2.9% on $110,820)$3,214

Total SE tax$16,956

Deductible half of SE tax$8,478

Adjusted net income$111,522

SEP contribution (25%)$27,881

Priya can contribute $27,881 to her SEP-IRA — that's 23.2% of her net SE income. At a 24% federal + 9% state marginal rate, this saves her roughly $9,200 in taxes.

If Priya used a Solo 401(k) instead

Employer contribution (same)$27,881

Employee deferral$23,500

Solo 401(k) total$51,381

Additional over SEP$23,500

With a Solo 401(k), Priya could shelter an additional $23,500 in pre-tax income. At her income level, the Solo 401(k) is the better choice unless she values the simplicity of a SEP.

FAQ

What is a SEP-IRA? ▼

A Simplified Employee Pension IRA (SEP-IRA) is a retirement plan for self-employed individuals and small business owners. The employer (you, as a self-employed person) makes contributions on behalf of eligible employees (including yourself). Contributions are tax-deductible, grow tax-deferred, and are taxed as ordinary income when withdrawn in retirement. The 2026 contribution limit is $72,000 or 25% of compensation, whichever is less.

How is the SEP-IRA contribution calculated for self-employed individuals? ▼

For self-employed individuals, the contribution is 25% of "adjusted net self-employment income." This means: take your net SE income (Schedule C profit), subtract the deductible half of self-employment tax, then multiply by 25%. The effective rate works out to approximately 20% of your original net SE income. This is defined in IRS Publication 560 and uses the rate table or deduction worksheet.

What’s the difference between a SEP-IRA and a Solo 401(k)? ▼

Both allow employer contributions of 25% of compensation. The key difference: a Solo 401(k) also allows an employee deferral of $23,500 (2026), plus catch-up contributions if you're 50+ ($7,500) or 60-63 ($11,250 under SECURE 2.0). For most self-employed people earning under ~$280K, the Solo 401(k) allows higher total contributions. However, SEP-IRAs are simpler to administer (no Form 5500-EZ), can be opened and funded up to the tax deadline including extensions, and have no annual filing requirements.

What is the SEP-IRA contribution deadline? ▼

You can establish and fund a SEP-IRA up to your tax filing deadline, including extensions. For sole proprietors, that's typically April 15 (or October 15 with a 6-month extension). This is a significant advantage over a Solo 401(k), which must be established by December 31 of the tax year (though contributions can be made until the filing deadline).

Can employees contribute to a SEP-IRA? ▼

No. Only the employer makes contributions to a SEP-IRA. Employees cannot make elective deferrals. This is one of the main differences from a Solo 401(k), where the business owner can make both employer and employee contributions. If you want the ability to defer your own salary, a Solo 401(k) is the better choice. Note that if you have W-2 employees, you must contribute the same percentage of their compensation as you contribute for yourself.

Related Calculators

Add This Calculator to Your Website

Embed the sum.money SEP-IRA Calculator on your site. Free, responsive, always up-to-date.