SEP IRA Calculator (2026)

How this SEP-IRA calculator works

A SEP-IRA (Simplified Employee Pension) is authorized by IRC §408(k) and is the lowest-friction retirement plan for small businesses and self-employed individuals. Unlike a 401(k) or SIMPLE IRA, all contributions are employer contributions — there is no employee elective deferral and no age-50 catch-up. For sole proprietors, "employer" and "employee" are the same person, so a Schedule C filer contributes to their own SEP based on their business's net profit.

The 2026 numbers, from IRS Notice 2025-67 and IR-2025-176

• §415(c) DC ceiling: $72,000 for 2026 (up from $70,000 in 2025). This is the absolute maximum from all sources for a single participant.
• §401(a)(17) compensation cap: $360,000 for 2026 (up from $350,000 in 2025). Compensation above this amount is ignored when computing the SEP contribution.
• Nominal contribution rate: up to 25% under IRC §404(h)(1)(C).
• Effective rate for sole proprietors: 25%/(1+25%) = 20% per IRC §401(c)(2), applied to adjusted net earnings from self-employment.
• Practical ceiling for a sole prop: $72,000/20% = $360,000 of adjusted net earnings. At exactly $360,000, both the §415(c) $72K ceiling and the §401(a)(17) $360K cap bind simultaneously.
• Practical ceiling for W-2 employees: $72,000/25% = $288,000 of W-2 wages. Above $288,000, the §415(c) ceiling binds before the §401(a)(17) cap.

Why sole proprietors get 20% instead of 25%

The 25% rate under §404(h)(1)(C) is a percentage of "compensation." For a W-2 employee, compensation is a fixed number on the W-2. For a self-employed person, IRC §401(c)(2) defines compensation as net earnings from self-employment reduced by both one-half of self-employment tax (§164(f)) and the retirement plan contribution itself. Because compensation depends on the contribution, and the contribution depends on compensation, the algebra collapses to:

contribution = adjusted_net_earnings × rate / (1 + rate)

For rate = 25%, effective rate = 25%/1.25 = 20%. This is the standard IRS Publication 560 Rate Table result, and it's why every SEP-IRA guide and Solo 401(k) employer-contribution calculation for a sole prop uses 20% rather than 25%.

The exact worksheet the calculator uses for sole proprietors

• Step 1: Net earnings from self-employment (§1402(a)) = Schedule C net profit × 0.9235 (this is the 92.35% factor per IRC §1402(a)(12) that excludes the employer-side half of SE tax before computing SE tax).
• Step 2: SE tax = min(net_se_earnings, $184,500) × 12.4% (SS wage base 2026) + net_se_earnings × 2.9% (Medicare, uncapped). Additional Medicare Tax (0.9% above $200K/$250K) is not part of the SE tax deduction and is not modeled here — it does not affect the SEP contribution.
• Step 3: Half-SE-tax deduction = SE_tax / 2 per §164(f).
• Step 4: Adjusted net earnings = Schedule C net profit − half-SE-tax. Per Pub 560, this is the starting point for applying the rate.
• Step 5: SEP contribution = min(effective_rate × min(adjusted_net_earnings, $360,000), $72,000) where effective_rate = rate/(1+rate).

Related reading and calculators

• SEP-IRA vs Solo 401(k) for freelancers in 2026 — the complete math, setup, and deadline guide — the deep-dive blog piece this calculator was built to pair with. Covers the §401(c)(2) algebra, the §408(d)(2) pro-rata trap, and the SECURE 2.0 §603 mandatory Roth catch-up.
• SIMPLE IRA vs SEP-IRA vs Solo 401(k) in 2026 — the small-business retirement trio — the three-way comparison across headcount, contribution ceiling, and administrative burden.
• Backdoor Roth IRA in 2026 — the pro-rata trap defusing playbook (SEP balances count as pre-tax IRA under IRC §408(d)(2) for backdoor Roth aggregation — this is the single most important reason a high-earning freelancer might choose Solo 401(k) over SEP).
• SIMPLE IRA calculator · Solo 401(k) / 401(k) calculator · Self-employment tax calculator · Roth conversion calculator · General retirement calculator
• All CalcLeap calculators · About CalcLeap Editorial

Primary sources

• IRS Notice 2025-67 (2026 pension plan COLA adjustments, October 2025).
• IRS News Release IR-2025-176 (2026 retirement contribution limits).
• IRC §408(k) (SEP-IRA authorization).
• IRC §404(h) (25% employer contribution deduction limit for SEP-IRAs).
• IRC §401(c)(2) (earned income definition for self-employed retirement plan participants — the source of the 20% effective rate).
• IRC §415(c)(1)(A) ($72,000 defined-contribution plan ceiling for 2026).
• IRC §401(a)(17) ($360,000 compensation cap for 2026).
• IRC §1402(a) and §1402(a)(12) (net earnings from self-employment and the 92.35% factor).
• IRC §164(f) (deduction for one-half of self-employment tax).
• IRC §408(d)(2) (SEP-IRA balances included in backdoor Roth pro-rata denominator).
• IRS Publication 560 (2025), Rate Table and Rate Worksheet for Self-Employed.