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SEP-IRA 2026: Contribution Limits, Tax Benefits & How to Open
A SEP-IRA (Simplified Employee Pension) is the easiest and most flexible retirement account for self-employed individuals. The 2026 limit jumped to $70,000 — here's everything you need to know.
2026 SEP-IRA Contribution Limits
| 2026 | 2025 | |
|---|---|---|
| Maximum contribution | $70,000 | $69,000 |
| Percentage of net SE income | Up to 25% | Up to 25% |
| Catch-up contributions (age 50+) | None | None |
| Employee contributions allowed | Not allowed | Not allowed |
Important: The contribution limit is the lesser of $70,000 or 25% of your net self-employment compensation. Because of how SE compensation is calculated, most self-employed filers hit an effective ceiling around 18.587% of their Schedule C net profit.
How to Calculate Your Maximum SEP-IRA Contribution
The calculation for self-employed individuals involves a circular reference — your SEP-IRA contribution reduces your net SE income, which in turn reduces the maximum allowable contribution. Here's the step-by-step IRS-approved method:
Step-by-Step Calculation (Example: $100,000 Net Profit)
1
Net Schedule C profit: $100,000
2
Calculate SE tax: $100,000 × 92.35% × 15.3% = $14,130
3
SE tax deduction (half): $14,130 ÷ 2 = $7,065
4
Net SE income after deduction: $100,000 − $7,065 = $92,935
5
Max SEP-IRA: $92,935 × 25% = $23,234
Quick shortcut: Multiply your net Schedule C profit by 18.587% for a close estimate.
| Net Schedule C Profit | Approx. Max SEP-IRA |
|---|---|
| $30,000 | $5,576 |
| $50,000 | $9,294 |
| $75,000 | $13,940 |
| $100,000 | $18,587 |
| $150,000 | $27,881 |
| $200,000 | $37,174 |
| $280,700+ | $70,000 (maximum) |
Tax Benefits of a SEP-IRA
- 100% tax-deductible: Contributions reduce your federal and state taxable income — not just federal.
- Does not reduce self-employment tax: The deduction only applies to income tax. Your SE tax (Social Security + Medicare) is calculated on net profit before the SEP-IRA deduction.
- Tax-deferred growth: Investments grow without annual capital gains or dividend taxes until withdrawal.
- Withdrawals taxed as ordinary income in retirement — ideally at a lower tax rate than your working years.
| Contribution | Tax Bracket | Annual Tax Savings |
|---|---|---|
| $10,000 | 22% | $2,200 |
| $20,000 | 22% | $4,400 |
| $20,000 | 24% | $4,800 |
| $40,000 | 32% | $12,800 |
| $70,000 | 35% | $24,500 |
SEP-IRA Rules You Must Know
- Must include eligible employees: If you have employees who meet the eligibility criteria (age 21+, worked 3 of last 5 years, earned $750+), you must contribute the same percentage of their compensation as your own.
- Immediate 100% vesting: All contributions vest immediately — unlike many 401(k) plans with multi-year vesting schedules.
- Required Minimum Distributions (RMDs) begin at age 73 under the SECURE 2.0 Act.
- No Roth SEP-IRA option: All contributions are pre-tax. There is no after-tax Roth version.
- Can contribute after age 73 if you are still earning self-employment income — RMDs and contributions can run simultaneously.
- 10% early withdrawal penalty applies to distributions taken before age 59½, with standard exceptions (disability, first-home purchase up to $10,000, substantially equal payments, etc.).
SEP-IRA Contribution Deadline
April 15, 2027
Standard deadline for 2026 tax year
October 15, 2027
Extended deadline (with filed extension)
Most Flexible
Open & fund after Dec 31
- You can open AND fund a SEP-IRA up to the tax filing deadline — no need to open the account by December 31.
- This is more flexible than a Solo 401(k), which must be established by December 31 of the tax year (though funding can come later).
- There is no penalty for waiting until April to open and fund — just don't miss the deadline.
How to Open a SEP-IRA
- Get an EIN (Employer Identification Number) at IRS.gov — takes 5 minutes online. Sole proprietors can use their SSN instead, but an EIN keeps business and personal finances cleaner.
- Choose a brokerage — all of the major online brokers offer free SEP-IRA accounts with no annual fees (see comparison below).
- Complete Form 5305-SEP — this is the IRS model plan document that officially establishes your SEP. Keep it in your records; you do not file it with the IRS.
- Fund the account by your contribution deadline. You can make multiple contributions throughout the year, or a single lump-sum.
- Report on your tax return: Deduct your SEP-IRA contribution on Schedule 1, Line 16 of Form 1040.
| Brokerage | Fees | Investment Options | Notes |
|---|---|---|---|
| Fidelity | $0 | Stocks, ETFs, mutual funds | No minimums; excellent research tools |
| Vanguard | $0 | Stocks, ETFs, mutual funds | Known for low-cost index funds |
| Schwab | $0 | Stocks, ETFs, mutual funds | Strong mobile app; good customer service |
No affiliate relationships. All information is factual and provided for comparison only.
SEP-IRA vs. Solo 401(k): Which Is Better?
SEP-IRA Advantages
- Simpler to set up — no annual IRS filings
- Can include W-2 employees
- Can open and fund after December 31
- No loan provisions needed
Solo 401(k) Advantages
- Higher contributions at lower income levels
- Employee elective deferrals (up to $23,500)
- Roth option available
- Loan provisions available
Bottom line: Solo 401(k) generally surpasses the SEP-IRA at income levels of $20,000–$30,000 and below. Above $100,000, both plans allow substantial contributions. If you have employees or prefer simplicity, choose SEP-IRA.
See full SEP-IRA vs Solo 401(k) comparison →
See full SEP-IRA vs Solo 401(k) comparison →
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