SEP-IRA Contribution Calculator
A SEP-IRA is one of the most powerful retirement savings tools for self-employed individuals and small business owners, allowing contributions of up to 25% of eligible compensation (or effectively about 20% of net self-employment income after the SE tax deduction) up to the 2025 annual cap of $70,000. This calculator handles both the self-employed case (where you adjust for the SE tax deduction) and the W-2 employee case (where the 25% applies directly to wages). It shows you the IRS-approved maximum contribution you can make.
SEP-IRA contribution formula (2025)
Self-employed: SE tax deduction = net income * 0.9235 * 0.153 / 2
Adjusted comp = net income - SE tax deduction
Max contribution = min(adjusted comp * 0.25, $70,000)
W-2 employee: Max contribution = min(W-2 wages * 0.25, $70,000)
For self-employed filers, IRS Publication 560 requires reducing net self-employment income by the deductible portion of self-employment tax (half of SE tax) before applying the 25% rate. The SE tax is calculated on 92.35% of net earnings (net earnings * 0.9235 * 15.3% = total SE tax; half is deductible).
SEP-IRA planning considerations
- No catch-up contributions: unlike 401(k) plans, SEP-IRAs do not allow age-50 catch-up contributions. The limit is the same for all ages.
- If you have employees, you must contribute the same percentage of compensation to all eligible employees' SEP-IRAs as you contribute to your own.
- SEP-IRA funds are immediately 100% vested; there is no vesting schedule.
- Contributions can be invested in the same broad range of assets as Traditional IRAs.
- Consider a Solo 401(k) if you want catch-up contributions or the ability to make Roth contributions; it allows higher contributions at lower income levels.
Frequently asked questions
What is a SEP-IRA?
A Simplified Employee Pension IRA (SEP-IRA) is a retirement plan available to self-employed individuals and small business owners. Contributions are made by the employer (or self-employed person) only, are tax-deductible, and grow tax-deferred until withdrawal.
How much can I contribute to a SEP-IRA in 2025?
For 2025, the SEP-IRA contribution limit is the lesser of 25% of compensation or $70,000. For self-employed individuals, the calculation is slightly different: the contribution rate is effectively 20% of net self-employment income after the self-employment tax deduction (IRS Publication 560 provides the exact calculation).
How is self-employed compensation calculated for SEP-IRA purposes?
For a self-employed person, 'compensation' is net self-employment income minus the deductible part of self-employment tax (half of SE tax). The effective contribution rate on net self-employment income is approximately 18.587% if you use 20% of adjusted income, but the IRS provides exact Contribution Rate Worksheets in Publication 560.
Can I make a SEP-IRA contribution if I also have a W-2 job?
Yes. You can contribute to a SEP-IRA based on your net self-employment earnings even if you also have a W-2 job with a 401(k). However, the total additions limit across all plans in a single year still applies. SEP-IRA contributions from self-employment are generally treated separately from your W-2 employer plan.
What is the deadline to make a SEP-IRA contribution for 2025?
You have until your tax filing deadline, including extensions, to make a SEP-IRA contribution for the prior year. For most self-employed individuals, this means you can contribute for the 2025 tax year until October 15, 2026 (if you file an extension). You must establish the SEP-IRA by the tax filing deadline.
Official sources
- IRS Publication 560: Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
- IRS: Self-Employed Individuals: Calculating Your Own Retirement Plan Contribution
Reviewed by the CalculatorHub team, edited by James Graham, 15 June 2026. See our methodology.