The 2026 SEP IRA contribution limit for a self-employed owner is the lesser of about 20% of net earnings from self-employment or $72,000, the $72,000 figure being up from $70,000 in 2025 (Source: IRS Notice 2025-67). The headline 25% rate describes a W-2 employee; a sole proprietor, single-member LLC owner, or partner applies a reduced rate that works out to roughly 20% and runs it on net earnings, not on gross Schedule C profit.
For 2026, a SEP IRA contribution is capped at the lesser of 25% of compensation or $72,000, up from $70,000 in 2025 (Source: IRS Notice 2025-67). Only the employer funds the plan: no employee deferrals and no age-50 catch-up. A self-employed owner uses net earnings and an effective rate of 0.25 / 1.25 = 20%, so a contribution reaches $72,000 only when net profit is well into six figures.
What is the SEP IRA contribution limit for 2026?
The SEP IRA contribution limit for 2026 is the lesser of 25% of an employee’s compensation or $72,000, up from $70,000 in 2025 (Source: IRS Notice 2025-67). The $72,000 figure is the Section 415(c) annual-additions dollar cap. A SEP is employer-funded only, with no employee elective deferrals and no catch-up contributions at any age.
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The 25% rate and the $72,000 dollar cap work as a “lesser of” test: the percentage applies first to each eligible person’s compensation, and if 25% would exceed $72,000, the dollar cap governs. Two more 2026 figures shape the result. The annual compensation counted under Section 401(a)(17) is capped at $360,000, up from $350,000 in 2025 (Source: IRS Notice 2025-67). Because 25% of $360,000 is $90,000, the $72,000 dollar limit is what actually binds at the top of the range.
2025 vs. 2026 SEP IRA figures at a glance
For 2026, the SEP dollar cap rises to $72,000 from $70,000, the counted-compensation limit rises to $360,000 from $350,000, and the minimum compensation to participate rises to $800 from $750 (Source: IRS Notice 2025-67). The 25% rate is unchanged, and SEPs still allow no employee deferrals and no catch-up.
| Item | 2025 | 2026 | Authority |
|---|---|---|---|
| Maximum SEP contribution (dollar cap, IRC 415(c)) | $70,000 | $72,000 | IRS Notice 2025-67 |
| Contribution rate (25% “lesser of” test) | 25% | 25% | IRS SEP limits page |
| Self-employed effective rate (0.25 / 1.25) | 20% | 20% | IRS Publication 560 |
| Annual compensation cap (IRC 401(a)(17)) | $350,000 | $360,000 | IRS Notice 2025-67 |
| Minimum compensation to participate (IRC 408(k)(2)(C)) | $750 | $800 | IRS Notice 2025-67 |
| Employee elective deferrals | Not permitted | Not permitted | IRS SEP limits page |
| Catch-up contributions (age 50+) | Not permitted | Not permitted | IRS SEP limits page |
How much can a self-employed person contribute to a SEP IRA in 2026?
A self-employed person contributes the lesser of about 20% of net earnings from self-employment or $72,000 for 2026 (Source: IRS Publication 560; IRS Notice 2025-67). Net earnings are Schedule C net profit (or K-1 self-employment income) minus the deduction for one-half of self-employment tax. The 20% rate is the reduced version of 25%, computed as 0.25 / 1.25.
The starting point is not gross revenue. Compensation for a self-employed owner means net earnings from self-employment, figured after the one-half self-employment tax deduction (Source: IRS Publication 560). Sole proprietors and single-member LLC owners start from Schedule C net profit; partners start from Schedule K-1 self-employment earnings.
Why 25% is really about 20% for the self-employed
The 25% becomes 20% because a self-employed owner’s contribution reduces the very earnings the percentage is applied to, so the IRS uses a reduced rate of 0.25 / 1.25 = 0.20 (Source: IRS Publication 560). Applying a flat 25% to Schedule C net profit is the single most common self-employed SEP error and overstates the allowable contribution.
A W-2 employer contributes 25% on top of stated pay, but a self-employed owner is both employer and employee, so the contribution is carved out of the same net earnings, and the 25% rate becomes 0.25 / 1.25 = 0.20 to keep the result consistent (Source: IRS Publication 560).
Worked example: a SEP contribution on $150,000 of net profit
On $150,000 of Schedule C net profit, a 2026 SEP contribution is roughly $27,900, well under the $72,000 cap (Source: IRS Publication 560). The order is fixed: net profit, then subtract one-half of self-employment tax to reach net earnings, then apply the 20% reduced rate, then compare to the $72,000 and $360,000 caps.
Follow the steps in this order, which mirrors the Rate Worksheet and Deduction Worksheet in IRS Publication 560:
- Start with Schedule C net profit: $150,000.
- Multiply by 0.9235 to get net earnings subject to self-employment tax: $138,525.
- Apply the 15.3% self-employment tax rate (the base is below the 2026 Social Security wage base, so the full rate applies): about $21,194.
- Deduct one-half of that tax: about $10,597.
- Subtract from net profit to reach net earnings from self-employment: $150,000 minus $10,597, or about $139,403.
- Apply the 20% reduced rate: 0.20 times $139,403, or about $27,881.
- Compare to the $72,000 dollar cap and the $360,000 compensation cap: neither binds, so the contribution is about $27,881.
| Step | Figure (2026) | Authority |
|---|---|---|
| Schedule C net profit | $150,000 | IRS Publication 560 |
| Net earnings subject to SE tax (x 0.9235) | $138,525 | IRS Publication 560 |
| Self-employment tax (15.3%) | $21,194 | IRS Publication 560 |
| One-half SE-tax deduction | $10,597 | IRS Publication 560 |
| Net earnings from self-employment | $139,403 | IRS Publication 560 |
| Reduced rate applied | 20% (0.25 / 1.25) | IRS Publication 560 |
| Estimated SEP contribution | about $27,881 | IRS Publication 560 |
| 2026 dollar cap | $72,000 (not reached) | IRS Notice 2025-67 |
An owner at $150,000 of net profit contributes roughly 18.6% of that profit, not 25%, because the rate runs on net earnings after the self-employment tax deduction. Exact dollars come from the Publication 560 worksheets or a tax professional; you can contact Q3 Advisors to discuss a specific situation.
Who is eligible for a SEP IRA in 2026?
An employee generally must be covered by a 2026 SEP if the person is at least age 21, has worked for the employer in at least 3 of the last 5 years, and earned at least $800 in 2026, up from $750 in 2025 (Source: IRS SEP FAQs; IRS Notice 2025-67). These are the maximum requirements an employer may set; a plan can be less restrictive but not more.
A SEP is employer-established, so these rules describe which employees the business must include; if the owner meets the plan’s conditions, the owner is eligible too. A uniformity rule also applies: a SEP must use the same contribution percentage for every eligible employee, including the owner, so contributing 15% of the owner’s compensation means contributing 15% of each eligible employee’s compensation that year (Source: IRS SEP contribution limits page).
What is the SEP IRA contribution deadline for 2026?
SEP contributions for the 2026 tax year can be made up to the business’s tax-filing deadline, including extensions: generally April 15, 2027, or October 15, 2027 with a valid extension for calendar-year filers (Source: IRS Publication 560). The same deadline applies to establishing the plan, so a SEP can be both opened and funded after the tax year closes.
This timing helps cash-flow planning. Because the plan can be set up and funded after year-end, an owner can size the contribution once profit is known, and amounts are discretionary each year, so a business is not locked into a fixed funding commitment (Source: IRS Publication 560).
SEP IRA vs. Solo 401(k): which lets you contribute more?
Both share the same $72,000 annual-additions cap for 2026, but a Solo 401(k) adds an employee elective deferral and an age-50 catch-up on top of the employer piece, so it often reaches a higher total on modest net earnings (Source: IRS Notice 2025-67). A SEP is employer-only and simpler to administer.
Which plan lets you contribute more depends on income and staffing. For the full head-to-head, see the Q3 Advisors SEP IRA vs. Solo 401(k) comparison and the 2026 Solo 401(k) contribution limits; this page focuses on the SEP limit and the self-employed calculation.
Can I contribute to a SEP IRA and a Roth IRA at the same time?
Yes. Employer SEP contributions do not reduce the separate personal IRA limit of $7,500 for 2026, or $8,600 for those age 50 and older (Source: IRS Notice 2025-67). An owner can receive SEP contributions and still make a personal Roth or Traditional IRA contribution, subject to the Roth income phase-out of $153,000 to $168,000 for single filers and $242,000 to $252,000 for joint filers.
The two limits are independent. A SEP IRA account can even hold personal Traditional or Roth IRA contributions, which follow their own rules. For owners weighing after-tax savings, a Roth conversion is a separate planning path with its own tax treatment.
Can I make Roth SEP contributions in 2026?
The SECURE 2.0 Act authorized a designated Roth option for SEP contributions, so Roth SEP dollars are permitted in 2026, but availability at custodians and payroll providers has been rolling out unevenly (Source: SECURE 2.0 Act of 2022, Section 601). An owner interested in Roth SEP contributions would confirm support with the account provider first.
A designated Roth SEP contribution uses after-tax dollars, so it does not reduce current taxable income, but qualified withdrawals later can be tax-free. Because many providers have not yet built the reporting support, some owners who want Roth exposure instead pair a pre-tax SEP with a Roth conversion strategy.
Tax treatment, RMDs, and penalties
Pre-tax SEP contributions are generally deductible by the business and grow tax-deferred; withdrawals are taxed as ordinary income and required minimum distributions generally begin at age 73 (Source: IRS Publication 560; SECURE 2.0 Act of 2022, Section 107). Excess contributions above the allowable limit can trigger a 6% excise tax until corrected (Source: IRS Publication 560).
Because SEP dollars are pre-tax, large balances raise taxable required minimum distributions later, which can push a retiree into higher Medicare IRMAA premiums (applying above $109,000 of MAGI for single filers and $218,000 for joint filers in 2026) and can expose investment income to the 3.8% net investment income tax.
This is why some owners weigh deducting now against paying later, using a Roth conversion break-even analysis and the 2026 Roth conversion deadline to frame the timing. For the correction mechanics, see the excess IRA contribution penalty; for all 2026 limits across accounts, see the 2026 retirement contribution limits hub. A SIMPLE IRA is a separate employer plan that, unlike a SEP, does allow employee salary deferrals.
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Q3 Advisors is a registered investment adviser focused on retirement tax planning. This page is educational and is not advice; consult a qualified professional.
Frequently asked questions
These answers summarize the 2026 SEP IRA rules covered above, drawing on IRS Notice 2025-67 and IRS Publication 560. Each answer states the rule and the applicable 2026 dollar figure or age.
How much can I contribute to a SEP IRA in 2026?
For 2026 you can contribute the lesser of 25% of compensation or $72,000, up from $70,000 in 2025 (Source: IRS Notice 2025-67). Only the employer funds a SEP, with no employee deferrals and no catch-up. If you are self-employed, you use net earnings and an effective rate near 20%, so most owners contribute well under $72,000.
What is the SEP IRA contribution limit for self-employed in 2026?
For a self-employed owner in 2026, the limit is the lesser of about 20% of net earnings from self-employment or $72,000 (Source: IRS Publication 560; IRS Notice 2025-67). Net earnings equal Schedule C net profit minus one-half of self-employment tax. On $150,000 of net profit, the contribution is roughly $27,900.
Why is the SEP IRA limit 20% instead of 25%?
Because a self-employed owner’s contribution comes out of the same net earnings the rate is applied to, the IRS converts 25% into a reduced rate of 0.25 / 1.25 = 0.20 (Source: IRS Publication 560). The 25% figure describes a W-2 employer contribution on top of stated pay; the 20% figure keeps the self-employed result consistent.
What is the deadline for SEP IRA contributions for 2026?
The deadline is the business’s tax-filing deadline, including extensions: generally April 15, 2027, or October 15, 2027 with a valid extension for calendar-year filers (Source: IRS Publication 560). The plan can also be established by that date, so a SEP can be opened and funded after the 2026 tax year ends.
Can I have a SEP IRA and a Roth IRA at the same time?
Yes. Employer SEP contributions do not reduce the separate personal IRA limit of $7,500 for 2026, or $8,600 at age 50 and older (Source: IRS Notice 2025-67). You can receive SEP contributions and still fund a Roth IRA up to the personal limit, subject to the Roth income phase-out of $153,000 to $168,000 single and $242,000 to $252,000 joint.
Is there a catch-up contribution for a SEP IRA?
No. A SEP has no age-50 catch-up because it allows no employee elective deferrals; it is funded only by employer contributions under the 25% / $72,000 limit for 2026 (Source: IRS SEP contribution limits page). Catch-up contributions apply to salary-deferral plans such as 401(k) and SIMPLE IRA plans, and to personal IRAs.
Can I contribute to a SEP IRA and a 401(k) in the same year?
In many cases yes, depending on the employers and plans involved (Source: IRS Publication 560). If you are self-employed with a SEP and also participate in an unrelated employer’s 401(k), you may contribute to both, but overall annual-additions and elective-deferral limits apply across plans, and controlled-group rules can apply. Coordinating combined limits with a professional is prudent.
Sources
IRS Notice 2025-67, “2026 Amounts Relating to Retirement Plans and IRAs” (https://www.irs.gov/pub/irs-drop/n-25-67.pdf). IRS, “SEP contribution limits (including grandfathered SARSEPs)” (https://www.irs.gov/retirement-plans/plan-participant-employee/sep-contribution-limits-including-grandfathered-sarseps). IRS Publication 560, “Retirement Plans for Small Business” (https://www.irs.gov/publications/p560). IRS, “Self-employed individuals: Calculating your own retirement plan contribution and deduction” (https://www.irs.gov/retirement-plans/self-employed-individuals-calculating-your-own-retirement-plan-contribution-and-deduction). IRS, “Retirement plan FAQs regarding SEPs” (https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps). SECURE 2.0 Act of 2022, Sections 107 and 601 (Division T of the Consolidated Appropriations Act, 2023, Pub. L. 117-328).
