SEP IRA Calculator

A SEP IRA (Simplified Employee Pension) is a retirement account for self-employed people and small business owners. Only the employer funds it, so for a sole proprietor that means you contribute to your own account. It has much higher limits than a regular IRA, almost no paperwork, and no annual filing requirement. The trade-off: if you have employees, you must contribute the same percentage of pay for each eligible one as you do for yourself (IRS: SEP FAQs).

For 2026 you can contribute up to 25% of compensation, capped at $72,000 (IRS Notice 2025-67). If you are a sole proprietor, the 25% is applied to net earnings from self-employment, which means net profit minus half of your self-employment tax. Because the contribution reduces that base, the effective ceiling works out to about 20% of net profit. The calculator above does the self-employment tax math for you.

No. SEP IRAs have no catch-up contribution at any age, because the entire contribution is an employer contribution and catch-ups only apply to employee elective deferrals. This is the single biggest reason an older high earner might prefer a Solo 401(k) instead: a Solo 401(k) adds an employee deferral plus an age-50 catch-up on top of the same 25% employer contribution. The calculator shows the Solo 401(k) maximum next to your SEP number so you can see the gap.

It takes three steps. First, your net earnings from self-employment equal net profit times 92.35%. Second, you subtract half of your self-employment tax (12.4% Social Security up to the $184,500 wage base, plus 2.9% Medicare, on those net earnings). Third, you multiply the result by 20%, which is the 25% rate adjusted for the fact that the contribution itself lowers the base (25% / 1.25). The figure is then capped at $72,000. Worksheets for this live in IRS Publication 560.

If you have no employees, a Solo 401(k) almost always lets you contribute more at the same income, because it stacks a $24,500 employee deferral (2026) on top of the 25% employer contribution, and it allows a catch-up at 50 and over. A SEP IRA wins on simplicity: no plan document to maintain and no Form 5500 to file at all, and you can open and fund one right up to your tax filing deadline including extensions. A Solo 401(k), by contrast, has to file Form 5500-EZ once its assets pass $250,000. Many people start with a SEP and move to a Solo 401(k) as income rises.

Yes. A SEP IRA contribution does not use up your $7,500 regular IRA limit ($8,600 at 50 and older in 2026); they are separate. Being covered by a SEP does, however, count as workplace plan coverage, which can phase out the deduction on a Traditional IRA contribution depending on your income. You can still make the IRA contribution, deductible or not, or direct it to a Roth IRA if your income qualifies.

A SEP IRA is unusually flexible on timing. You can establish and fund it as late as your business tax filing deadline, including extensions, for the prior year. That means a sole proprietor can open a SEP IRA in, say, September and still make a deductible contribution for the previous tax year. This makes it a popular last-minute tax move for self-employed people who had a strong year.

The same percentage rule applies to everyone. If you contribute 20% of your own compensation, you must contribute 20% of each eligible employee's compensation too, and those contributions are immediately vested. Eligible generally means age 21 or older, worked for you in 3 of the last 5 years, and earned at least $800 in 2026. For a business with several employees, this can get expensive fast, which is why a 401(k) with its own employee deferrals is often a better fit once you have staff.