How the SEP IRA Calculator Works
A SEP IRA (Simplified Employee Pension IRA) is a retirement plan designed for self-employed individuals and small business owners. It allows you to contribute up to 25% of compensation for yourself and your eligible employees, with a maximum limit of $70,000 per participant for 2025.
Key Formula
For self-employed individuals, the contribution is calculated as 20% of net self-employment income (adjusted for the deductible portion of self-employment tax). This is because the contribution itself reduces your net earnings from self-employment. The effective rate of 20% corresponds to the stated rate of 25% of compensation.
| Net Earnings |
Effective Rate |
Max Contribution |
| $50,000 | 20% | $10,000 |
| $100,000 | 20% | $20,000 |
| $200,000 | 20% | $40,000 |
| $350,000 | 20% | $70,000 (max) |
| $500,000 | 20% | $70,000 (max) |
The maximum contribution is the lesser of:
- 20% of net self-employment income (for the self-employed), or
- $70,000 (2025 annual limit)
Employee Contributions
If you have eligible employees, you must contribute the same percentage of salary for each eligible employee as you contribute for yourself. Eligible employees are those who:
- Are at least 21 years old
- Have worked for you in at least 3 of the last 5 years
- Earn at least $750 in compensation (2025)
Frequently Asked Questions
What is the maximum SEP IRA contribution for 2025?
The maximum SEP IRA contribution for 2025 is $70,000 per participant, or 25% of compensation (whichever is less). For self-employed individuals, the effective contribution rate is 20% of net earnings from self-employment.
How is the SEP IRA contribution calculated for self-employed individuals?
For self-employed individuals, the contribution is calculated as 20% of net self-employment income (net profit minus half of self-employment tax). This is because the contribution reduces net earnings, so a stated 25% contribution rate equals an effective 20% rate when applied to net earnings.
Do I have to contribute the same percentage for employees?
Yes, SEP IRA rules require that you contribute the same percentage of compensation for all eligible employees as you contribute for yourself. You cannot selectively contribute different percentages for different employees.
Who is eligible for a SEP IRA contribution?
Eligible employees are those who are at least 21 years old, have worked for you in at least 3 of the last 5 years, and have earned at least $750 in compensation during the year (2025 threshold).
Can I contribute to both a SEP IRA and a Traditional IRA?
Yes, you can contribute to both a SEP IRA and a Traditional or Roth IRA in the same year. However, traditional IRA contribution deductibility may be limited if you or your spouse are covered by a retirement plan at work.
What is the deadline for SEP IRA contributions?
SEP IRA contributions for a tax year can be made up until the tax filing deadline (including extensions). For most taxpayers, this means you have until April 15 of the following year (or October 15 if you file an extension).