SEP IRA

A SEP IRA (Simplified Employee Pension Individual Retirement Account) is a retirement plan designed for self-employed individuals and small business owners. It offers significantly higher contribution limits than traditional IRAs and is simple to set up and maintain.

2026 Contribution Limits:

Limit Type	Amount
Maximum Contribution	$70,000
Percentage Limit	25% of net self-employment income
Effective Limit (Self-Employed)	~20% after SE tax adjustment

Key Features:

• Only employer contributions (no employee deferrals)
• Tax-deductible contributions
• Tax-deferred growth
• No annual filing requirements (unlike SIMPLE IRA or 401k)
• Easy to set up - most brokerages offer free SEP IRA accounts
• Contributions are discretionary each year

Who Can Use SEP IRA:

• Sole proprietors
• Freelancers
• Independent contractors
• Small business owners
• Side-gig income earners

Contribution Calculation (Self-Employed):

Step	Calculation
1. Net Profit	Revenue - Business Expenses
2. Minus 1/2 SE Tax	Net Profit × 0.9235
3. Contribution	Adjusted × 25% (max 20% effective)

Example:

• Net self-employment income: $150,000
• SE tax adjustment: $150,000 × 0.9235 = $138,525
• Max contribution: $138,525 × 0.25 = $34,631

SEP IRA vs Other Plans:

Feature	SEP IRA	Solo 401(k)	SIMPLE IRA
Max Contribution	$70,000	$70,000+	~$19,500
Employee Deferrals	No	Yes	Yes
Catch-up (50+)	No	Yes	Yes
Complexity	Very low	Medium	Low
Roth Option	No	Yes	No

Best For:

• Self-employed with variable income
• Those wanting simplicity
• Late starters needing to catch up (high limits)
• Small businesses with few/no employees