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SEP-IRA Contribution Calculator 2026

The SEP-IRA formula is simple for S-corp owners (exactly 25% of W-2 wages) but tricky for sole proprietors — the self-employment tax deduction reduces the contribution base in a way most calculators skip. Enter your details for the precise 2026 number, then see how it stacks up against a Solo 401(k).

How the SEP-IRA contribution is calculated

S-corp and C-corp owners: the simple formula

If you pay yourself a W-2 salary, the calculation is straightforward: 25% × W-2 salary, capped at $72,000 for 2026. K-1 distributions do not count as compensation for SEP purposes.

To reach the $72,000 ceiling, your W-2 salary must be at least $288,000. Pulling additional income as S-corp distributions above that threshold produces no additional SEP benefit — and pushes your S-corp salary higher, which increases FICA exposure.

Sole proprietors and single-member LLCs: the SE tax adjustment

The IRS requires self-employed owners to reduce the SEP contribution base by the self-employment tax deduction (IRS Pub. 560). The five-step formula:

  1. Net SE earnings = Net Schedule C profit × 92.35%
  2. SE tax = Net SE earnings × 15.3% (up to SS wage base of $184,500 for 20262); 2.9% Medicare-only on the excess
  3. Deductible half of SE tax = SE tax ÷ 2
  4. Compensation for SEP = Net profit − (SE tax ÷ 2)
  5. SEP maximum = Compensation × 25%, capped at $72,000

Because the SE deduction eats into the contribution base, the effective SEP rate for sole props works out to roughly 20–23% of net Schedule C profit — not the full 25% that applies to W-2 compensation.

Worked example: $200,000 net Schedule C profit (age 45)
  1. Net SE earnings: $200,000 × 92.35% = $184,700
  2. SE tax: $184,500 × 12.4% + $184,700 × 2.9% = $22,878 + $5,356 = $28,234
  3. Half SE tax deduction: $28,234 ÷ 2 = $14,117
  4. Compensation for SEP: $200,000 − $14,117 = $185,883
  5. SEP maximum: $185,883 × 25% = $46,471 (23.2% of net profit)

Compare to Solo 401(k) at same income: $24,500 employee deferral + ~$37,200 profit-sharing = ~$61,700 — $15,229 more per year.

2026 SEP-IRA limits at a glance

Parameter2026 ValueAuthority
Maximum annual contribution$72,000IRC §415(c); IRS Notice 2025-671
Maximum compensation counted$360,000IRC §401(a)(17); IRS Notice 2025-67
Contribution rate (W-2 / S-corp)25% of W-2 wagesIRC §408(k)(3)
Effective rate (sole prop)~20–23% of net profitIRS Pub. 560 Rate Table
Catch-up contributions (age 50+)NoneIRC §408(k) — no catch-up provision
Roth optionNoneSEP contributions must be pre-tax
Employee salary deferralNoneAll contributions are employer-only
Contribution deadlineOct 15, 2027 (with extension)IRS Pub. 5603

SEP-IRA vs Solo 401(k): when each wins

These two plans share the same $72,000 ceiling, but they diverge significantly at lower income levels and for owners over age 50.

ScenarioSEP-IRASolo 401(k)Winner
Net profit $80,000 (sole prop)~$15,800~$36,600Solo 401(k) by ~$20,800
Net profit $200,000 (sole prop)~$46,500~$61,700Solo 401(k) by ~$15,200
Net profit $350,000+ (sole prop)$72,000$72,000Tie (both at §415 cap)
Any income, age 50–59Unchanged+$8,000 catch-upSolo 401(k) by $8,000
Any income, age 60–63Unchanged+$11,250 super catch-upSolo 401(k) by $11,250
W-2 employees existAllowed (must cover them)DisqualifiedSEP-IRA (only option)
Setup and maintenance15 min, no Form 5500Plan doc + 5500-EZ if assets >$250KSEP-IRA
Roth optionNoYes (Roth Solo 401k)Solo 401(k)
The bottom line: The Solo 401(k) is almost always the better retirement plan for owner-only businesses because of the catch-up provisions at 50+ and the ability to shelter more at lower income levels. The SEP-IRA wins on simplicity and when you have W-2 employees you need to cover. If you're over 50 with a Solo 401(k) and want to shelter even more, consider stacking a cash balance plan on top.

Related calculators and guides

Model your exact retirement plan strategy with a specialist

These calculations show the SEP-IRA ceiling — but your optimal strategy involves entity structure, W-2 salary level, employee headcount, and whether combining a Solo 401(k) with a cash balance plan would shelter an additional $90K–$330K annually. A fee-only financial advisor who specializes in business-owner planning can model all the options together before you file. Free match, no obligation.

SEP-IRA Calculator — Frequently Asked Questions

What is the SEP-IRA contribution limit for 2026?

The 2026 SEP-IRA contribution limit is $72,000 per IRS Notice 2025-67 (IRC §415(c)). Contributions are capped at 25% of W-2 compensation for S-corp owners, or roughly 20–23% of net Schedule C profit for sole proprietors after the self-employment tax deduction. The compensation used to calculate contributions is capped at $360,000 under IRC §401(a)(17).

How do I calculate my SEP-IRA contribution as a sole proprietor?

The IRS requires a five-step formula per IRS Pub. 560: (1) Multiply net Schedule C profit by 92.35% to get net SE earnings; (2) Calculate SE tax — 12.4% on SS wages up to $184,500 for 2026 plus 2.9% Medicare on all earnings; (3) Take half of SE tax as your deduction; (4) Subtract that half from net profit to get SEP compensation; (5) Multiply by 25%, capped at $72,000. The effective rate works out to roughly 20–23% of net profit — not the full 25% that applies to W-2 wages.

What is the SEP-IRA contribution limit for S-corp owners in 2026?

S-corp owners contribute 25% of W-2 salary from the corporation, up to $72,000. To reach the ceiling, your salary must be at least $288,000. K-1 distributions do not count as compensation for SEP purposes. Compensation is capped at $360,000 per IRC §401(a)(17).

Does a SEP-IRA have catch-up contributions for those 50 and older?

No. SEP-IRAs have no catch-up provision under IRC §408(k). The $72,000 limit is the absolute ceiling at any age. Business owners 50+ who want higher limits should consider a Solo 401(k), which allows an $8,000 catch-up (age 50–59 or 64+) or $11,250 super catch-up (ages 60–63, SECURE 2.0), for a total of up to $83,250.

Can I have both a SEP-IRA and a Solo 401(k) in the same year?

Generally no — both plans draw from the same §415(c) annual limit for the same business. You cannot exceed $72,000 total by combining them. If you have a Solo 401(k) for one business and self-employment income from a completely separate, unrelated business, separate plan limits may apply. For most owners the Solo 401(k) is the better single choice.

What is the SEP-IRA contribution deadline for 2026?

The deadline is your business tax return due date including extensions. For sole proprietors: October 15, 2027 (with extension). For S-corps and partnerships: September 15, 2027 (with extension). You can also open a brand-new SEP-IRA and fund it up to that same deadline — making it more flexible for late adopters than a Solo 401(k), which must be established by December 31 of the plan year. Source: IRS Publication 560.

How does the SEP-IRA compare to the Solo 401(k) for the self-employed?

The Solo 401(k) is almost always the better plan for owner-only businesses: it allows far higher contributions at lower income levels (e.g., ~$36,600 vs ~$15,800 at $80K net profit), has catch-up contributions at 50+, offers a Roth option, and allows mega-backdoor Roth contributions. The SEP-IRA wins on simplicity — no plan document, no Form 5500-EZ, 15-minute setup — and when you have W-2 employees who must be covered proportionally under the plan.

  1. IRC §415(c) — 2026 annual additions limit $72,000; IRC §401(a)(17) — 2026 compensation cap $360,000. IRS: 401(k) limit increases to $24,500 for 2026. IRS Notice 2025-67 (October 2025).
  2. 2026 Social Security wage base: $184,500. SSA: Contribution and Benefit Base. SE tax rate 15.3% on wages up to base, 2.9% Medicare-only above per IRC §1401.
  3. SEP-IRA contribution deadline and computation. IRS Publication 560: Retirement Plans for Small Business (2026 ed.). Includes Rate Table for Self-Employed Individuals.
  4. Solo 401(k) 2026 catch-up limits: $8,000 (age 50–59/64+) and $11,250 (ages 60–63 SECURE 2.0 super catch-up). IRC §414(v)(2)(B); IRS Notice 2025-67. IRS newsroom announcement.

All tax values verified June 2026 against IRS Notice 2025-67, IRC §408(k), §415(c), §401(a)(17), and IRS Publication 560.