The SEP IRA contribution limits 2026 set the maximum employer contribution at the lesser of 25% of an employee’s compensation or $72,000, up from $70,000 in 2025 (Source: IRS Notice 2025-67). For a self-employed owner, the practical ceiling is usually lower, because the calculation runs on net earnings and an effective rate of roughly 20%.
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 contributes; there are no employee deferrals and no catch-up contributions. Self-employed owners use net earnings and an effective rate near 20%, so most contribute well under $72,000.
What are the SEP IRA contribution limits for 2026?
For 2026, the SEP IRA contribution is limited to the lesser of 25% of an employee’s compensation or $72,000 (Source: IRS Notice 2025-67; IRS SEP contribution limits page). The $72,000 figure is the Section 415(c)(1)(A) defined-contribution annual-additions limit, which increased from $70,000 in 2025. This is a per-person dollar ceiling that no single SEP contribution can exceed.
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The 25% rate and the $72,000 dollar cap work together as a “lesser of” test. The percentage applies first to each eligible person’s compensation; if 25% of that compensation would exceed $72,000, the dollar cap governs instead. For a W-2 employee, the math is straightforward: 25% of pay, subject to the compensation cap and the $72,000 limit.
Two other 2026 figures shape the calculation. The annual compensation that can be counted under Section 401(a)(17) is capped at $360,000 for 2026, 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: once 25% of counted compensation would exceed $72,000, the dollar cap governs the contribution.
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 be an eligible participant rises to $800 from $750 (Source: IRS Notice 2025-67). The 25% contribution rate is unchanged, and SEPs still permit no employee elective deferrals and no catch-up contributions. The table below sets the two years side by side.
| 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 |
| Annual compensation cap (IRC 401(a)(17)) | $350,000 | $360,000 | IRS Notice 2025-67 |
| Minimum compensation to be an eligible participant (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 | 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 does not apply 25% to net profit directly. The IRS uses a reduced rate because the deduction and net earnings depend on each other (Source: IRS Publication 560). For a plan written at 25%, that reduced rate is 0.25 / 1.25 = 0.20, so the effective ceiling is about 20% of net earnings from self-employment, still capped at $72,000 for 2026.
The starting point is not gross revenue or net profit alone. Compensation for a self-employed owner means net earnings from self-employment, computed after the deduction for one-half of self-employment tax and after the SEP contribution itself (Source: IRS Publication 560). Sole proprietors and single-member LLC owners generally start from Schedule C net profit; partners start from their Schedule K-1 self-employment earnings.
The distinction matters in practice. The “25% or $72,000” figure describes a W-2 employee, while a sole proprietor’s ceiling is closer to 20% of net earnings and reaches $72,000 only when net profit is well into six figures (Source: IRS Publication 560). The worked example below illustrates the method.
Worked example: the order of the self-employed calculation
The order of the steps determines the result. The reduced 20% rate does not apply to Schedule C net profit directly; it applies to net earnings, which are computed after the deduction for one-half of self-employment tax. IRS Publication 560 sets out this sequence in its Rate Worksheet and Deduction Worksheet (Source: IRS Publication 560).
- Start with net profit from Schedule C.
- Subtract the deduction for one-half of self-employment tax to reach net earnings from self-employment (Source: IRS Publication 560).
- Apply the reduced rate, which for a 25% plan is 0.25 / 1.25 = 0.20, to those net earnings (Source: IRS Publication 560).
- Compare the result to the $72,000 dollar cap and the $360,000 counted-compensation cap; the contribution is the smaller figure (Source: IRS Notice 2025-67).
| Step | Basis (2026) | Authority |
|---|---|---|
| Schedule C net profit | Starting figure | IRS Publication 560 |
| Less one-half self-employment tax deduction | Reduces to net earnings | IRS Publication 560 |
| Reduced contribution rate | 0.25 / 1.25 = 20% | IRS Publication 560 |
| Applied to net earnings | Estimated SEP contribution | IRS Publication 560 |
| 2026 dollar cap | $72,000 (upper bound) | IRS Notice 2025-67 |
The practical effect is that a self-employed owner reaches the $72,000 dollar cap only at a higher level of net profit than a W-2 comparison suggests, because the effective rate is near 20% of net earnings rather than 25% of net profit (Source: IRS Publication 560). Because the one-half self-employment tax deduction depends on each owner’s own figures, the exact dollar amounts come from the Rate Worksheet and Deduction Worksheet in IRS Publication 560, or from a tax professional (Source: IRS Publication 560). You can contact Q3 Advisors for a discussion of how the calculation applies to a specific situation.
Who is eligible for a SEP IRA?
Under the IRS rules, an employee generally must be covered by the 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 retirement plan FAQs; IRS Notice 2025-67). An employer may set less restrictive terms; these are the maximum allowable requirements.
A SEP is an employer-established plan, so the eligibility rules describe the employees the business must cover. Under the standard IRS rules, an eligible employee is generally one who is at least age 21, has worked for the employer in at least 3 of the last 5 years, and earned at least the minimum compensation threshold of $800 for 2026 (Source: IRS SEP retirement plan FAQs; IRS Notice 2025-67).
An employer may use less restrictive requirements but not more restrictive ones. If the owner meets the plan’s own conditions, the owner is an eligible participant too. Certain nonresident-alien employees and some union employees covered by collective bargaining may be excluded under the SEP rules.
The uniformity rule
A SEP must use the same contribution percentage for every eligible employee, including the owner. If the business contributes 15% of the owner’s compensation, it must contribute 15% of each eligible employee’s compensation for that year (Source: IRS SEP contribution limits page). This uniformity requirement is a defining feature that owners with several employees sometimes weigh when comparing a SEP to other structures.
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. For most calendar-year filers that means April 15, 2027, or October 15, 2027 if a valid extension is filed (Source: IRS Publication 560). The same deadline generally applies to establishing the SEP itself, one of the plan’s flexibility features.
This flexibility matters for cash-flow planning. Because the plan can be both set up and funded after the tax year closes, an owner can size the contribution once the year’s profit is known. Contribution amounts are discretionary each year, so a business is not locked into a fixed funding commitment.
How does a SEP IRA compare to a Solo 401(k)?
A SEP IRA and a Solo 401(k) share the same $72,000 total contribution cap for 2026, but they reach it differently (Source: IRS Notice 2025-67). A SEP allows only employer contributions capped near 20% of net earnings for the self-employed. A Solo 401(k) adds an employee elective deferral on top of the employer piece, which often lets a lower-earning owner reach a higher total.
| Feature (2026) | SEP IRA | Solo 401(k) |
|---|---|---|
| Overall dollar cap | $72,000 | $72,000 (plus catch-up for those 50+) |
| Employee elective deferral | Not allowed | Allowed (402(g) deferral) |
| Catch-up (age 50+) | None | Allowed |
| Employees other than owner/spouse | Permitted (uniformity applies) | Generally owner and spouse only |
| Setup complexity | Lower (Form 5305-SEP) | Higher (plan document, possible Form 5500-EZ) |
| Roth option | Designated Roth SEP allowed under SECURE 2.0; provider availability varies | Roth deferrals commonly available |
Factors to weigh at 2026 numbers include the following. For an owner with no non-spouse employees, a Solo 401(k) can reach a higher total on modest net earnings, because the elective deferral does not depend on the 20% calculation. A SEP involves lower administrative steps and can cover eligible employees, subject to the uniformity rule. The relevant trade-offs are income, staffing, and administrative complexity.
SECURE 2.0 authorized a designated Roth option for SEP contributions, but availability at custodians and payroll providers has been rolling out unevenly, so an owner interested in Roth SEP dollars would confirm support with the account provider. For a broader view of how these plans sit alongside other accounts, see the Q3 Advisors 2026 retirement contribution limits overview.
SEP IRA vs. SIMPLE, Traditional, and Roth IRAs
A SEP IRA is funded by the employer, while a Traditional or Roth IRA is a personal account the individual funds. The 2026 personal IRA contribution limit is $7,500, with a $1,100 catch-up for those age 50 and older (Source: IRS Notice 2025-67). A SIMPLE IRA is a separate employer plan that does allow employee salary deferrals, unlike a SEP. These are distinct rule sets that apply independently.
Employer SEP contributions do not reduce the separate $7,500 personal IRA limit. An owner can receive SEP contributions and still contribute to a Traditional or Roth IRA up to the personal limit, subject to income and deduction rules. A SEP IRA account can also hold personal Traditional or Roth IRA contributions, though those personal amounts follow their own rules. For owners weighing Roth strategies, a Roth conversion is a separate planning path with its own tax treatment.
Tax treatment, distributions, and penalties
Employer SEP contributions are generally deductible by the business within the annual limits and grow tax-deferred (Source: IRS Publication 560). SEP IRA distributions follow Traditional IRA rules: withdrawals are generally taxable as ordinary income, a 10% additional tax may apply before age 59 and a half unless an exception applies (Source: IRC Section 72(t)), and required minimum distributions generally begin at age 73 (Source: SECURE 2.0 Act of 2022, Section 107).
Excess contributions above the allowable limit can trigger an excise tax until corrected (Source: IRS Publication 560). Because SEP dollars are pre-tax, large balances can raise taxable RMDs later, which is why some owners study the interaction with required minimum distributions, Medicare IRMAA thresholds, and the net investment income tax as part of long-range tax planning.
A note on SARSEPs
Salary Reduction SEPs (SARSEPs) could no longer be established after 1996, but plans set up before 1997 may continue. For those grandfathered plans, the 2026 elective deferral limit is $24,500 (Source: IRS SEP contribution limits page). Standard SEPs established today do not permit any employee elective deferrals.
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Q3 Advisors is a registered investment adviser focused on retirement tax planning. This article is educational and is not advice; for guidance on your own circumstances, consult a qualified tax or financial professional.
Frequently asked questions
These answers summarize the 2026 SEP IRA rules covered above, drawing on IRS Notice 2025-67 and IRS Publication 560. They address the maximum contribution, the self-employed calculation, eligibility, deadlines, catch-up treatment, and how a SEP compares to a Solo 401(k). Each answer states the rule and the applicable dollar figure or age, with the primary source noted for reference (Source: IRS Notice 2025-67).
What is the maximum SEP IRA contribution for 2026?
The maximum SEP IRA contribution 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 25% rate applies to counted compensation, which is capped at $360,000 for 2026. Self-employed owners use net earnings and an effective rate near 20%, so most reach less than the $72,000 dollar cap.
How much can a self-employed person contribute to a SEP IRA?
A self-employed person uses net earnings from self-employment, computed after the one-half self-employment tax deduction, and a reduced rate that works out to about 20% for a 25% plan (0.25 / 1.25), still capped at $72,000 for 2026 (Source: IRS Publication 560). Actual amounts depend on net profit and self-employment tax, so many owners confirm figures with the Publication 560 worksheets.
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 (Source: IRS Notice 2025-67). An individual can receive SEP contributions and also contribute to a Roth IRA up to the personal limit, subject to Roth income eligibility rules. The two limits are independent, though Roth contributions phase out at higher incomes.
What is the SEP IRA contribution deadline?
SEP contributions for a tax year can be made up to the business’s tax-filing deadline, including extensions (Source: IRS Publication 560). For 2026 calendar-year filers, that is generally April 15, 2027, or October 15, 2027 with a valid extension. The plan can also be established by that deadline, which lets owners size the contribution after year-end results are known.
Is there a catch-up contribution for SEP IRAs?
No. Catch-up contributions are not permitted in a SEP because SEPs do not allow employee elective deferrals (Source: IRS SEP contribution limits page). The age-50 catch-up applies to plans with salary deferrals, such as 401(k) and SIMPLE IRA plans, and to personal IRAs. A SEP is funded only by employer contributions subject to the 25%/$72,000 limit for 2026.
Can I contribute to a SEP IRA and a 401(k)?
In many cases yes, depending on the employers and plans involved (Source: IRS Publication 560). Overall annual-additions limits and elective-deferral limits apply across plans, so contributions must be coordinated. Someone self-employed with a SEP who also participates in an unrelated employer’s 401(k) may contribute to both, but combined limits and controlled-group rules can apply and are worth confirming with a professional.
What is the difference between a SEP IRA and a Solo 401(k)?
Both share a $72,000 total cap for 2026, but a SEP allows only employer contributions near 20% of net earnings for the self-employed, while a Solo 401(k) adds an employee elective deferral and a catch-up for those 50 and older (Source: IRS Notice 2025-67). A Solo 401(k) can often reach a higher total on modest earnings; a SEP is typically simpler to administer.
Are SEP IRA contributions tax deductible?
Employer SEP contributions are generally deductible by the business within the annual limits, and for the self-employed the deduction is calculated using the reduced-rate method in IRS Publication 560 (Source: IRS Publication 560). Contributions grow tax-deferred, and distributions are generally taxed as ordinary income later. Deductibility and timing can depend on business structure and filing, so specifics vary.
Sources
IRS Notice 2025-67, “2026 Amounts Relating to Retirement Plans and IRAs,” Internal Revenue Bulletin 2025-49 (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 newsroom, “401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500” (https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500). IRS, “Retirement plan FAQs regarding SEPs” (https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps). Internal Revenue Code Section 72(t), additional tax on early distributions. IRS Publication 590-B, “Distributions from Individual Retirement Arrangements (IRAs)” (https://www.irs.gov/publications/p590b). SECURE 2.0 Act of 2022, Section 107, “Increase in age for required beginning date for mandatory distributions” (Division T of the Consolidated Appropriations Act, 2023, Pub. L. 117-328).
