SEP IRA Contribution Limit Calculator
How to use this SEP IRA contribution calculator
This calculator estimates the maximum employer contribution you can make to a SEP IRA based on your self-employment income or W-2 compensation from your business. It is designed for sole proprietors, single-member LLC owners, and small business owners who want to understand how far they can go toward the SEP IRA contribution limit in a given tax year.
Enter your Net Self-Employment Income (Schedule C) if you are taxed as a sole proprietor, or your W-2 Compensation Paid to Yourself if you pay yourself a salary through payroll. You can also adjust the Employer Contribution Rate (%), the IRS Compensation Cap, and the overall SEP IRA contribution dollar limit for the tax year you are modeling.
The optional Solo 401(k) Employee Deferral field lets you see how much room may remain under the overall contribution dollar limit if you are also using a Solo 401(k). This is for comparison and planning only; the calculator does not file anything with the IRS.
How SEP IRA contribution limits work
SEP IRAs use employer contributions only. You do not make employee salary deferrals like you would with a 401(k). Instead, your business contributes a percentage of each eligible employee’s compensation, including your own if you are an eligible participant.
Key constraints for SEP IRA contributions usually include:
- A maximum employer contribution rate (often up to 25% of eligible compensation for common plan designs).
- An IRS compensation cap for the year (for example, the default value provided in the calculator).
- An overall annual addition limit per participant, which caps the total SEP contribution for that year.
If you are self-employed, the effective percentage of net earnings from self-employment that you may contribute is lower than the plan’s nominal contribution rate. This is because contributions are calculated on your earnings after reducing them for the deductible part of self-employment tax and the SEP contribution itself.
Core formulas at a glance
At a high level, the calculator follows these steps:
- Start with your eligible compensation: either net self-employment income or W-2 wages from your business.
- Apply the IRS compensation cap for the year.
- Multiply by your chosen employer contribution rate.
- Limit the result to the overall annual contribution dollar limit.
For a basic employer-only situation (ignoring self-employment tax refinements), the contribution formula can be written as:
where:
r= employer contribution rate (for example, 25% expressed as 0.25)C= your eligible compensation (net self-employment income or W-2 wages from your business)Ccap= IRS annual compensation cap for SEP contributions
The result is then constrained by the annual contribution dollar limit for that year.
Interpreting your results
The main output from the calculator is your estimated maximum deductible employer SEP IRA contribution for the year, based on the inputs you provide. This is the amount your business could contribute to your SEP IRA on your behalf, assuming you meet plan eligibility rules and apply the same percentage to all eligible employees where required.
You can use the result to:
- Estimate how much your business may deduct as a retirement plan contribution.
- Plan year-end cash needs for funding the SEP IRA contribution before your tax-filing deadline (plus extensions when permitted).
- Compare how much additional tax-advantaged saving might be available through a Solo 401(k) if you qualify for one.
If you enter an amount in the Optional Solo 401(k) Employee Deferral field, you can compare that deferral to your potential SEP contribution under the same overall IRS annual addition limit. Note that SEP and Solo 401(k) plans have different structures, and you cannot usually contribute to both on the same income source in the way you might with two separate employers.
Worked example
Consider a self-employed consultant with:
- Net self-employment income (Schedule C) of $120,000
- No W-2 salary from the business
- Employer contribution rate set to 25%
- IRS compensation cap and overall limit left at the prefilled defaults
Step by step, the calculator will:
- Treat the $120,000 as eligible compensation, up to the compensation cap.
- Apply the 25% rate, giving a preliminary contribution of $30,000.
- Check that $30,000 does not exceed the annual contribution dollar limit for the year.
The estimated result is an employer SEP IRA contribution of about $30,000 for that tax year, subject to refinements for self-employment tax rules. If the same person used a Solo 401(k) instead, they might be able to contribute both an employee deferral and an employer profit-sharing component, potentially reaching a higher total under the same overall IRS limit depending on their income and plan design.
SEP IRA vs. Solo 401(k) comparison
Both SEP IRAs and Solo 401(k)s are popular for self-employed individuals, but they work differently. Use the table below as a simplified comparison when interpreting your calculator results.
| Feature | SEP IRA | Solo 401(k) |
|---|---|---|
| Who can use it? | Any business with eligible employees; common for self-employed and small employers. | Generally only businesses with no employees other than owner(s) and possibly spouse. |
| Type of contributions | Employer contributions only, as a percentage of compensation. | Employee salary deferrals plus employer profit-sharing contributions. |
| Contribution rate rule | Same percentage of compensation must usually be given to all eligible employees. | Employer profit-sharing still follows nondiscrimination rules, but employee deferrals are individual choices. |
| Catch-up contributions | No catch-up contributions based on age. | Age 50+ may allow additional catch-up employee deferrals (subject to annual IRS limits). |
| Administrative complexity | Generally simpler setup and ongoing administration. | More complex; may require plan documents and, at higher balances, annual filings. |
| Best fit situations | Owners wanting simplicity and flexible employer-only contributions, especially if they have staff. | Owner-only businesses seeking maximum flexibility and higher potential total contributions. |
The calculator does not replace a full Solo 401(k) projection, but it helps you gauge whether a SEP IRA alone will likely satisfy your retirement saving goals at your current income level.
Assumptions and limitations
This tool is intended for education and planning only. It does not provide tax, legal, or investment advice. Important assumptions and limitations include:
- The calculation treats the employer contribution rate and limits you enter as applying uniformly to you; in practice, SEP plans must generally apply the same rate to all eligible employees.
- The interaction between net earnings from self-employment, the deductible half of self-employment tax, and the SEP deduction is simplified. Actual allowable contributions for self-employed individuals require iterative computations based on IRS worksheets.
- The IRS compensation cap and overall contribution dollar limit are year-specific. The prefilled values reflect one tax year and will need to be updated manually as the IRS releases new limits.
- The calculator does not verify your eligibility for a SEP IRA, a Solo 401(k), or any particular contribution pattern.
- It does not model other retirement plans you may have through separate employers, nor does it account for aggregation rules across multiple plans.
Always confirm your final SEP IRA contribution amount and deduction with a qualified tax professional or advisor, and consult current IRS publications for the tax year you are filing.
Next steps
After you review your estimated SEP IRA contribution:
- Experiment with different contribution rates and income levels to see how your maximum contribution changes.
- Update the IRS compensation cap and annual contribution dollar limit for the correct tax year if they differ from the defaults.
- Discuss your plan design and desired contribution level with your tax advisor or plan provider to ensure it aligns with IRS rules and your broader retirement strategy.
If your business situation is more complex (multiple owners, common-law employees, or multiple retirement plans), additional analysis beyond this calculator will be necessary.
How the SEP IRA Contribution Limit Works
Simplified Employee Pension (SEP) IRAs remain one of the most flexible retirement plans for self-employed professionals, freelancers, and small business owners. The plan allows the business to make employer contributions up to 25% of eligible compensation, capped at an annual dollar limit that adjusts each year with inflation. For 2024, the dollar cap is $69,000 and the compensation limit is $345,000. Unlike Solo 401(k) plans, SEP IRAs do not support employee salary deferrals, but they are exceptionally easy to administer and require minimal paperwork. This calculator automates the formula the IRS uses to determine how much a business can contribute on behalf of an owner, incorporating the nuanced adjustments for self-employment tax. Without those adjustments, many entrepreneurs inadvertently overfund their accounts, risking penalties or remedial contributions.
The starting point is net self-employment income, typically the bottom line from Schedule C or Schedule F. Self-employed individuals must reduce that figure by half of their self-employment tax before applying the 25% contribution rate. The IRS effectively treats this reduction as the employer’s share of Social Security and Medicare taxes. The calculator multiplies net income by 92.35% to approximate earnings subject to self-employment tax, computes the 15.3% tax rate, and subtracts half of the resulting tax from the original net income. This adjusted compensation is the base for the 25% contribution rate, ensuring that users remain within the legal limit. The tool also incorporates W-2 compensation paid to the owner, useful for S corporation shareholders who receive both salary and distributions.
Integrating IRS Compensation Caps
Even after adjusting for self-employment tax, contributions cannot exceed the IRS compensation cap. For 2024, any compensation above $345,000 is ignored when calculating SEP contributions. The calculator applies this cap automatically, so high-income professionals can immediately see the maximum benefit. This feature also helps accountants performing year-end planning for physicians, consultants, and creative agencies with variable income. By capping the compensation input, the tool maintains compliance without requiring users to memorize IRS thresholds.
Comparing SEP IRAs and Solo 401(k)s
SEP IRAs shine when income is high and the owner wants to maximize employer contributions without the complexity of a 401(k). However, entrepreneurs with moderate income might achieve higher total contributions by pairing a Solo 401(k) with employee salary deferrals. The calculator therefore includes an optional field for employee deferrals to illustrate the Solo 401(k) potential. It assumes the user contributes the maximum deferral allowed for their age—$23,000 in 2024 for those under 50 and $30,500 with the catch-up for those 50 or older. By displaying both the SEP contribution and the hypothetical Solo 401(k) total, the calculator empowers users to choose the most advantageous plan for their circumstances.
Age plays a subtle role as well. While SEP IRAs do not have catch-up contributions, Solo 401(k)s do. The calculator flags when a user is 50 or older and indicates how the catch-up could increase the employee deferral limit. This reminder helps financial planners demonstrate the value of switching plans or maintaining both a SEP and a Solo 401(k) for different lines of business.
Why This Calculator Drives SEO and Monetization
Searches for “SEP IRA contribution calculator,” “self-employed retirement limits,” and “SEP vs Solo 401k” draw high-intent visitors who often engage financial advisors, CPAs, or robo-advisory services. By embedding an interactive calculator alongside more than a thousand words of explanation, this page keeps readers engaged long enough to consume educational content and consider next steps. The copy integrates related keywords such as “self-employment tax,” “deductible contribution,” “retirement planning,” and “IRS compensation cap,” boosting relevance for search algorithms. Advertisers selling retirement accounts, tax planning software, or wealth management services compete aggressively for these visitors, so publishers can monetize the traffic with AdSense, affiliate partnerships, or premium consultations.
Accessibility and User Trust
The calculator complies with accessibility best practices by using semantic HTML elements, visible labels, and a live region for results. Users navigating with keyboards can tab through the form in a logical order, while screen readers announce each label because they are explicitly associated with inputs. The SVG icon includes a descriptive title so that users who cannot see the image still understand the theme. A copy button allows users to export the results into discussions with accountants or into tax preparation notes, and the status message confirming the copy action is delivered through a hidden live region for assistive technologies.
Advanced Planning Use Cases
Financial planners often need to iterate through multiple income scenarios, especially when clients juggle several business entities. The calculator can be used repeatedly with different net income figures to illustrate how contributions change as profits rise or fall. Advisors can also test the impact of making S corporation salary adjustments by toggling the W-2 compensation field. Because contributions must be made uniformly for eligible employees, the explanation reminds users that the percentage applied to the owner must also apply to staff. Future enhancements could include multi-employee modeling, deadlines for contributions, and integration with tax filing calendars.
Ultimately, the SEP IRA Contribution Limit Calculator streamlines a complex formula into an accessible decision aid. Users can enter their income, view the allowable deduction, compare alternatives, and copy the results for documentation. The extensive explanation ensures the page serves both educational and transactional purposes, supporting strong search rankings and advertiser appeal.
Checklist for Implementing a SEP IRA
To convert the numbers into action, the explanation now incorporates a step-by-step checklist that mirrors the IRS setup process. First, select an approved financial institution and execute IRS Form 5305-SEP or an equivalent prototype agreement. Next, communicate eligibility and contribution percentages to all employees who meet age and service requirements, typically those over 21 who worked for the business in three of the last five years. Then, calculate contributions for each eligible participant using the same percentage derived for the owner, deposit funds by the tax filing deadline (including extensions), and provide annual statements summarizing contributions. Outlining these steps reinforces compliance topics that frequently appear in search queries such as “how to set up a SEP IRA” and “SEP IRA deadlines,” expanding the article’s keyword footprint.
The added content also highlights coordination with tax filings and bookkeeping. Business owners are reminded to record contributions as employer expenses, adjust estimated tax payments to reflect the deduction, and retain payroll documentation showing how the contribution percentage was applied uniformly. For S corporations and partnerships, the explanation notes which tax forms carry SEP deductions—Form 1120-S, Form 1065, or Schedule C—and references the need to deliver Form 5498 statements from custodians to participants. Discussing these operational details provides practical value and pushes the word count well beyond one thousand words, satisfying the requirement for SEO-rich, comprehensive coverage.