SEP IRA Calculator
Calculate maximum SEP IRA contributions for self-employed individuals and small business owners. Determine your contribution limits based on net self-employment income and tax savings.
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About This Calculator
The SEP IRA (Simplified Employee Pension Individual Retirement Account) is one of the most powerful retirement savings vehicles for self-employed individuals and small business owners. With contribution limits far exceeding traditional IRAs, a SEP IRA allows you to save up to $69,000 (2024) while getting a substantial tax deduction.
What Is a SEP IRA? A SEP IRA is an employer-sponsored retirement plan that allows business owners to make tax-deductible contributions to their own and their employees' retirement accounts. Despite the "employer" designation, it's ideal for sole proprietors with no employees.
Key SEP IRA Features:
- Maximum contribution: $69,000 (2024) or 25% of compensation
- 100% tax-deductible contributions
- No annual filing requirements
- Flexible contributions (can vary year to year)
- Can be opened and funded until tax deadline (with extensions)
Who Should Use a SEP IRA?
- Self-employed individuals and freelancers
- Small business owners with few or no employees
- Those who want simple retirement plan administration
- High earners seeking maximum tax deductions
SEP IRA Calculation for Self-Employed: The math is different for self-employed individuals. You can contribute up to 20% of your net self-employment earnings (after the self-employment tax deduction), not 25%. This effective rate accounts for the circular calculation where your SEP contribution reduces your income.
This calculator helps determine your maximum SEP IRA contribution. For self-employment tax calculations, see our Self-Employment Tax Calculator. For QBI deduction planning, visit our QBI Deduction Calculator.
How to Use the SEP IRA Calculator
- 1Enter your net self-employment income (Schedule C line 31 or partnership K-1).
- 2Select your business entity type (sole prop, LLC, S-Corp, or C-Corp).
- 3If S-Corp or C-Corp, enter your W-2 wages from the business.
- 4Select your federal tax bracket for tax savings estimate.
- 5Enter your current age (affects catch-up comparisons).
- 6Input years to retirement for growth projection.
- 7Review your maximum SEP IRA contribution.
- 8Compare with Traditional IRA and Solo 401(k) limits.
- 9See your estimated tax savings from contributing.
- 10Consider which retirement plan best fits your situation.
SEP IRA Contribution Limits
Understanding how much you can contribute to a SEP IRA.
2024 Limits
| Limit | Amount |
|---|---|
| Maximum contribution | $69,000 |
| Compensation limit | $345,000 |
| Contribution rate | 25% of compensation |
Self-Employed Calculation
The calculation is more complex for self-employed:
- Start with net self-employment income
- Subtract half of self-employment tax (the deductible portion)
- Multiply by 20% (not 25%)
Why 20% Instead of 25%? The SEP contribution reduces your net earnings, which reduces your maximum contribution. The effective rate works out to 20% of net earnings after the SE tax adjustment.
Example Calculation
Net self-employment income: $150,000
| Step | Calculation | Amount |
|---|---|---|
| Net SE income | - | $150,000 |
| SE tax adjustment (×0.9235) | $150,000 × 0.9235 | $138,525 |
| SE tax | $138,525 × 15.3% | $21,194 |
| SE deduction | $21,194 ÷ 2 | $10,597 |
| Adjusted net earnings | $150,000 - $10,597 | $139,403 |
| SEP contribution (20%) | $139,403 × 20% | $27,881 |
SEP IRA vs Solo 401(k)
Comparing the two best retirement plans for self-employed.
Contribution Comparison
| Income | SEP IRA Max | Solo 401(k) Max |
|---|---|---|
| $50,000 | $9,294 | $23,000+ |
| $100,000 | $18,587 | $41,587 |
| $150,000 | $27,881 | $50,881 |
| $200,000 | $37,175 | $60,175 |
| $330,000+ | $69,000 | $69,000 |
Solo 401(k) includes employee contribution of $23,000 ($30,500 if 50+)
Feature Comparison
| Feature | SEP IRA | Solo 401(k) |
|---|---|---|
| Setup complexity | Easy | Moderate |
| Annual filing | None | Form 5500 if >$250K |
| Contribution deadline | Tax deadline + extensions | Dec 31 (employee) |
| Roth option | No | Yes |
| Loan provision | No | Yes |
| Catch-up (50+) | No | Yes ($7,500) |
| Employees allowed | Yes (must contribute) | Only owner + spouse |
When to Choose SEP IRA
Best if:
- You want simplicity
- Income is very high ($330K+)
- You have employees and want simple plan
- You don't need Roth contributions
- You may skip contributions some years
When to Choose Solo 401(k)
Best if:
- Income is under $300K
- You want Roth contributions
- You want loan provision
- You're 50+ and want catch-up
- You have no employees (except spouse)
SEP IRA for Different Entity Types
How your business structure affects SEP IRA contributions.
Sole Proprietorship / Single-Member LLC
Calculation Basis:
- Schedule C net profit
- Subtract SE tax deduction
- Apply 20% rate
Example:
- Schedule C profit: $120,000
- SEP contribution: ~$22,305
Partnership / Multi-Member LLC
Calculation Basis:
- Your share of partnership net income (K-1)
- Subject to same 20% calculation
- Each partner has own SEP IRA
Considerations:
- Partnership can establish SEP for all partners
- Or each partner establishes own SEP
S-Corporation
Calculation Basis:
- W-2 wages only (not distributions)
- 25% of W-2 compensation
- Up to $69,000 limit
Example:
- W-2 wages: $80,000
- SEP contribution: $80,000 × 25% = $20,000
- K-1 distributions don't count
Strategy Note: Some S-Corp owners deliberately increase W-2 wages to maximize SEP contributions, despite higher payroll taxes.
C-Corporation
Calculation Basis:
- W-2 compensation
- 25% of compensation
- Corporation gets tax deduction
Considerations:
- Corporation makes contribution (tax deduction for corp)
- Must include eligible employees
- More complex than S-Corp setup
SEP IRA Deadlines and Timing
When to set up and fund your SEP IRA.
Establishment Deadline
Set up SEP IRA by:
- Tax filing deadline (including extensions)
- April 15 for calendar year filers
- October 15 with extension
Unlike 401(k): No need to establish by December 31
Contribution Deadline
Fund by:
- Tax filing deadline (including extensions)
- Same as establishment deadline
- Can establish AND fund on same day
Strategic Timing
Year-End Planning
By December 31:
- Know your approximate net income
- Estimate SEP contribution
- Decide if SEP or Solo 401(k) is better
April Timing
Before April 15:
- Finalize tax return
- Calculate exact contribution
- Open and fund SEP (if haven't already)
Extension Strategy
If filing extension:
- Have until October 15 to contribute
- More time to raise funds
- Know exact income from completed return
Example Timeline
| Date | Action |
|---|---|
| Dec 31 | Tax year ends |
| Feb 15 | Receive 1099s |
| March 1 | Complete tax return draft |
| April 1 | Calculate max SEP contribution |
| April 10 | Open SEP IRA |
| April 14 | Fund SEP IRA |
| April 15 | File tax return with SEP deduction |
SEP IRA Rules for Employees
Important considerations if you have employees.
Employee Eligibility
Must include employees who:
- Are 21 or older
- Have worked for you 3 of last 5 years
- Earned at least $750 (2024) during the year
May exclude:
- Employees covered by union agreement
- Non-resident aliens with no US income
Equal Contribution Requirement
Critical Rule: If you contribute to your own SEP, you must contribute the same PERCENTAGE for all eligible employees.
Example:
- You contribute 15% for yourself
- Must contribute 15% for all eligible employees
- Based on each person's compensation
Cost Consideration
| Your Income | Your SEP (15%) | Employee ($50K, 15%) | Total |
|---|---|---|---|
| $150,000 | $22,500 | $7,500 | $30,000 |
| $200,000 | $30,000 | $7,500 | $37,500 |
| $300,000 | $45,000 | $7,500 | $52,500 |
Alternatives If You Have Employees
Consider:
- SIMPLE IRA (lower employer cost, lower limits)
- Traditional 401(k) (can vary employer match)
- Safe Harbor 401(k) (guaranteed compliance)
- Solo 401(k) (if employees are only spouse)
Tax Benefits and QBI Interaction
Understanding the full tax impact of SEP IRA contributions.
Direct Tax Deduction
SEP contributions reduce:
- Adjusted Gross Income (AGI)
- Taxable income
- Potentially ACA subsidy calculations
- Student loan repayment amounts (income-based)
Tax Savings by Bracket
| Tax Bracket | SEP Contribution | Federal Tax Savings |
|---|---|---|
| 22% | $30,000 | $6,600 |
| 24% | $30,000 | $7,200 |
| 32% | $30,000 | $9,600 |
| 35% | $30,000 | $10,500 |
| 37% | $30,000 | $11,100 |
Plus state tax savings in most states
QBI Deduction Interaction
Important: SEP contributions reduce QBI (Qualified Business Income), which reduces your QBI deduction.
Example:
- QBI before SEP: $200,000
- QBI deduction (20%): $40,000
- SEP contribution: $37,175
- QBI after SEP: $162,825
- New QBI deduction: $32,565
- Lost QBI deduction: $7,435
Net Benefit: Tax savings from SEP usually far exceed lost QBI deduction, but run the numbers.
FICA Tax Note
SEP contributions do NOT reduce:
- Self-employment tax (SE tax calculated on SE income before SEP)
- Unlike salary deferral into 401(k) for employees
This makes Solo 401(k) employee contributions slightly more valuable from a total tax perspective.
Pro Tips
- 💡File a tax extension to have until October 15 to fund your SEP IRA.
- 💡Compare SEP vs Solo 401(k) annually - the better choice may change with income.
- 💡SEP contributions reduce QBI - run the numbers to optimize total tax savings.
- 💡Use quarterly estimated tax payments assuming you'll make SEP contribution.
- 💡If you have employees, consider if SIMPLE IRA is more cost-effective.
- 💡SEP IRA has no annual filing requirements - Solo 401(k) requires Form 5500 over $250K.
- 💡You can skip SEP contributions in low-income years without penalty.
- 💡Consider Roth IRA contributions alongside SEP for tax diversification.
- 💡Track SE income throughout the year to estimate contribution limits.
- 💡SEP contributions are reported on Form 1040 Schedule 1, not Schedule C.
- 💡Open SEP IRA at low-cost brokerage (Fidelity, Schwab, Vanguard) for best investment options.
- 💡Document contribution calculations in case of IRS inquiry.
Frequently Asked Questions
The maximum SEP IRA contribution for 2024 is $69,000 or 25% of compensation, whichever is less. For self-employed individuals, the effective rate is 20% of net self-employment earnings after the self-employment tax deduction. The compensation limit is $345,000.
