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:
- Net SE earnings = Net Schedule C profit × 92.35%
- SE tax = Net SE earnings × 15.3% (up to SS wage base of $184,500 for 20262); 2.9% Medicare-only on the excess
- Deductible half of SE tax = SE tax ÷ 2
- Compensation for SEP = Net profit − (SE tax ÷ 2)
- 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.
- Net SE earnings: $200,000 × 92.35% = $184,700
- SE tax: $184,500 × 12.4% + $184,700 × 2.9% = $22,878 + $5,356 = $28,234
- Half SE tax deduction: $28,234 ÷ 2 = $14,117
- Compensation for SEP: $200,000 − $14,117 = $185,883
- 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
| Parameter | 2026 Value | Authority |
|---|---|---|
| Maximum annual contribution | $72,000 | IRC §415(c); IRS Notice 2025-671 |
| Maximum compensation counted | $360,000 | IRC §401(a)(17); IRS Notice 2025-67 |
| Contribution rate (W-2 / S-corp) | 25% of W-2 wages | IRC §408(k)(3) |
| Effective rate (sole prop) | ~20–23% of net profit | IRS Pub. 560 Rate Table |
| Catch-up contributions (age 50+) | None | IRC §408(k) — no catch-up provision |
| Roth option | None | SEP contributions must be pre-tax |
| Employee salary deferral | None | All contributions are employer-only |
| Contribution deadline | Oct 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.
| Scenario | SEP-IRA | Solo 401(k) | Winner |
|---|---|---|---|
| Net profit $80,000 (sole prop) | ~$15,800 | ~$36,600 | Solo 401(k) by ~$20,800 |
| Net profit $200,000 (sole prop) | ~$46,500 | ~$61,700 | Solo 401(k) by ~$15,200 |
| Net profit $350,000+ (sole prop) | $72,000 | $72,000 | Tie (both at §415 cap) |
| Any income, age 50–59 | Unchanged | +$8,000 catch-up | Solo 401(k) by $8,000 |
| Any income, age 60–63 | Unchanged | +$11,250 super catch-up | Solo 401(k) by $11,250 |
| W-2 employees exist | Allowed (must cover them) | Disqualified | SEP-IRA (only option) |
| Setup and maintenance | 15 min, no Form 5500 | Plan doc + 5500-EZ if assets >$250K | SEP-IRA |
| Roth option | No | Yes (Roth Solo 401k) | Solo 401(k) |
Related calculators and guides
- Compare all plans side-by-side: Solo 401(k) vs SEP vs Cash Balance
- SEP-IRA 2026: Complete Rules, Employee Coverage Trap, and Contribution Deadlines
- Solo 401(k) 2026: Contribution Limits, Roth Option, and Mega Backdoor
- Cash Balance Plan Calculator — add $90K–$330K per year on top of Solo 401(k)
- Quarterly Estimated Tax Calculator for Business Owners 2026
- All Retirement Plans for Business Owners: Hub Guide
- Match with a fee-only business owner retirement specialist
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.
- 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).
- 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.
- SEP-IRA contribution deadline and computation. IRS Publication 560: Retirement Plans for Small Business (2026 ed.). Includes Rate Table for Self-Employed Individuals.
- 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.