How much can I contribute to a SEP IRA?
Last updated August 2026
Short answer
The gap between 25% and 20% is the most common arithmetic error in self-employed retirement saving, and it goes in the direction of contributing too much.
The two ceilings
25% of compensation is the percentage limit, and $72,000 is the absolute one for 2026.
Compensation itself is capped at $360,000 for the calculation, so income above that adds nothing.
For an incorporated business paying W-2 wages, 25% of $288,000 reaches the $72,000 ceiling exactly.
Why self-employed is different
For a sole proprietor or partner, the contribution itself reduces net earnings, so applying 25% to the pre-contribution figure overshoots.
The correct rate is 25 divided by 125, which is 20% of the adjusted base.
That base is net profit minus the deduction for half of self-employment tax, which is why the worksheet has several lines rather than one multiplication.
A worked figure
Net self-employment profit of $100,000 gives roughly $92,935 after deducting half of self-employment tax.
20% of that is about $18,587, which is the SEP contribution, rather than the $25,000 that a naive 25% would suggest.
The difference is large enough to create an excess contribution, which carries a 10% excise tax until corrected.
Try it in Walnut
Walnut connects to your brokerage and reads a SEP IRA alongside your other accounts, so a self-employed portfolio is visible in one place.
No catch-up, and what that costs
SEP IRAs have no age-50 catch-up provision at all.
A solo 401(k) does, and it also adds an employee deferral on top of the employer percentage, so at moderate income it usually permits a larger contribution.
At high income the two converge, because both are capped by the same $72,000 annual additions limit.
The deadline
Both establishing and funding a SEP can happen up to the business tax filing deadline including extensions.
For a sole proprietor filing an extension, that reaches into October of the following year.
No other plan allows the account to be created after the tax year has closed, which is why a SEP is frequently the answer to an unexpected tax bill.
Contributions are discretionary
Nothing requires a contribution in any given year, so a bad year can pass with nothing paid in.
That flexibility is worth real money to a business with irregular income, and it is the clearest advantage over a SIMPLE IRA.
The decision can also be made after the year ends, once profit is known, which no plan with employee deferrals allows.
Sources
The $72,000 annual additions limit and the $360,000 compensation cap for 2026 are from IRS Notice 2025-67. The self-employed contribution worksheet and the deduction rules are in Publication 560. Walnut is informational and is not an investment adviser. This guide is educational and not personalized tax advice.
FAQ
How much can I contribute to a SEP IRA in 2026?
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The lesser of 25% of compensation or $72,000. Compensation counted for the calculation is itself capped at $360,000, so $72,000 is reached at about $288,000 of compensation for an incorporated business.
Why is my limit 20% rather than 25% if I am self-employed?
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Because the contribution reduces the net earnings it is calculated from, which makes the effective rate 25 divided by 125, or 20%. The base is also net self-employment income after deducting half of self-employment tax.
Is there a catch-up contribution at 50?
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No. SEP IRAs have no age-based catch-up, which is one of the ways a solo 401(k) can allow more for an older saver at the same income.
Can I contribute to a SEP and a personal IRA in the same year?
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Yes. The SEP contribution is an employer contribution and does not use your $7,500 personal IRA allowance. Being covered by the SEP does affect whether a traditional IRA contribution is deductible.
What if I have employees?
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The same percentage must go to every eligible employee. Contributing 20% for yourself means 20% for each of them, which is the constraint that decides whether a SEP is affordable at all.
When is the deadline?
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The business tax filing deadline including extensions, which can be as late as October for a sole proprietor who files an extension. The account can also be opened at that point rather than during the tax year.
Can I contribute to a SEP and a 401(k) from a different job?
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Yes. Salary deferrals at an unrelated employer's 401(k) are subject to your personal deferral limit, while the SEP contribution falls under the separate annual additions limit for your own business.
What happens if I over-contribute?
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Excess contributions are subject to a 10% excise tax on the employer and must be corrected. Because the self-employed calculation is easy to get wrong, running it through the Publication 560 worksheet before funding is worth the time.
Do I have to contribute every year?
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No. SEP contributions are entirely discretionary, so a bad year can pass with nothing paid in. That flexibility, plus a decision that can be made after the year ends, is the clearest advantage over a SIMPLE IRA.
Can I still make a personal IRA contribution?
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Yes, up to $7,500 for 2026, because the SEP contribution is an employer contribution rather than your own. Whether that personal contribution is deductible depends on the income phase-outs, since the SEP counts as workplace plan coverage.
How do I calculate it if I have both wage and self-employment income?
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Each business is treated separately for its own plan, but the annual additions limit applies per employer and the compensation cap applies to each. Where the businesses are related, controlled group rules can treat them as one, which changes the answer entirely.