Quick Answer
For 2026, you can contribute up to 25% of your net self-employment income to a SEP-IRA, with a maximum contribution of $70,000. Your contribution is based on your Schedule C profit minus half of your self-employment tax, making it simpler than Solo 401(k) calculations but with potentially lower limits.
Best Answer
James Okafor, Self-Employment Tax Specialist
Self-employed individuals looking for a simpler retirement plan option with good contribution limits
SEP-IRA contribution limits for 2026
SEP-IRA contributions for 2026 are limited to the lesser of $70,000 or 25% of your compensation. For self-employed individuals, "compensation" means your net self-employment income after subtracting half of your self-employment tax.
Unlike Solo 401(k)s, SEP-IRAs don't have separate employee and employer contribution buckets — it's one simple calculation that makes them easier to understand and manage.
How to calculate your SEP-IRA contribution
The formula is straightforward:
1. Take your Schedule C profit
2. Subtract half of your self-employment tax
3. Multiply by 25%
4. Compare to the $70,000 maximum
Example: $120,000 Schedule C profit
1. Self-employment tax: $120,000 × 15.3% = $18,360
2. Half of SE tax: $18,360 ÷ 2 = $9,180
3. Net self-employment income: $120,000 - $9,180 = $110,820
4. SEP-IRA contribution: $110,820 × 25% = $27,705
With $120,000 in profit, you can contribute $27,705 to your SEP-IRA.
SEP-IRA contribution limits by income level
*Net SE income = Schedule C profit minus half of self-employment tax
**Tax savings range assumes 22%-37% marginal tax bracket
Income needed to maximize SEP-IRA contributions
To contribute the full $70,000 to a SEP-IRA, you need approximately $280,000+ in Schedule C profit. Here's the calculation:
Key advantages of SEP-IRAs
Important limitations to consider
What you should do
1. Calculate your net self-employment income from your most recent Schedule C
2. Multiply by 25% to determine your contribution limit
3. Set up automatic monthly contributions to spread the tax benefit throughout the year
4. Consider whether the simplicity of a SEP-IRA outweighs the higher limits of a Solo 401(k)
5. Make contributions by your tax filing deadline (including extensions)
Use our deduction finder to explore how SEP-IRA contributions fit into your overall tax strategy.
Key takeaway: SEP-IRAs allow contributions up to $70,000 or 25% of net self-employment income in 2026, offering simplicity over Solo 401(k)s but without catch-up contributions for those 50+.
*Sources: [IRS Publication 560](https://www.irs.gov/pub/irs-pdf/p560.pdf), [IRS SEP Plan FAQs](https://www.irs.gov/retirement-plans/plan-sponsor/sep-plan-faqs)*
Key Takeaway: SEP-IRA contributions are limited to 25% of net self-employment income or $70,000 maximum, requiring about $280,000 in Schedule C profit to maximize.
SEP-IRA contribution limits by income level for 2026
| Schedule C Profit | Net SE Income | SEP-IRA Contribution | Effective Rate |
|---|---|---|---|
| $40,000 | $37,460 | $9,365 | 23.4% |
| $60,000 | $55,590 | $13,898 | 23.2% |
| $100,000 | $92,350 | $23,088 | 23.1% |
| $150,000 | $138,975 | $34,744 | 23.2% |
| $200,000 | $185,300 | $46,325 | 23.2% |
| $300,000+ | $277,050+ | $70,000 (max) | 23.3%+ |
More Perspectives
Priya Sharma, Small Business Tax Analyst
Established freelancers comparing SEP-IRA vs Solo 401(k) for maximum tax-advantaged savings
SEP-IRA vs Solo 401(k) for high earners
As a high-earning freelancer, you need to understand when SEP-IRAs make sense versus Solo 401(k)s. Both have the same $70,000 contribution limit, but they reach it differently.
When SEP-IRAs win for high earners
Simplicity premium: If your time is worth $200+ per hour, the administrative simplicity of SEP-IRAs may outweigh slightly lower contribution potential.
Variable income: SEP-IRAs work better if your income fluctuates significantly year-to-year, as there's no pressure to make consistent contributions.
Multiple LLCs: If you have several business entities, SEP-IRAs are easier to manage across multiple entities.
When Solo 401(k)s are better
Ages 50+: Solo 401(k) catch-up contributions ($7,500-$11,250 additional) can push total contributions to $77,000-$80,750, while SEP-IRAs remain capped at $70,000.
Lower income years: With income under $200,000, Solo 401(k) employee deferrals ($23,500) often exceed what SEP-IRA percentages allow.
Advanced strategy: Hybrid approach
Some high earners use both:
Note: Total contributions across all plans cannot exceed the annual limits.
Tax planning considerations
Roth conversions: SEP-IRAs are all traditional (pre-tax), so plan future Roth conversion strategies accordingly.
Required distributions: Both start RMDs at age 73, but SEP-IRAs may have more investment flexibility for managing distributions.
Key takeaway: High earners should choose SEP-IRAs for simplicity or Solo 401(k)s for maximum contributions, especially if over 50 or with variable income under $200,000.
Key Takeaway: High earners benefit from SEP-IRAs' simplicity but should consider Solo 401(k)s if over 50 (for catch-up contributions) or earning under $200,000 annually.
James Okafor, Self-Employment Tax Specialist
Beginning freelancers evaluating SEP-IRA as their first retirement plan option
Why SEP-IRAs are perfect for new freelancers
As a first-year freelancer, SEP-IRAs offer the simplest path to tax-advantaged retirement savings. Unlike Solo 401(k)s with complex employee/employer calculations, SEP-IRAs have one rule: contribute up to 25% of your net freelance income.
Simple calculation for beginners
Take your Schedule C profit, subtract about 7.65% for half of self-employment tax, then multiply by 25%. That's roughly 23% of your original profit.
Example with $30,000 first-year income:
Start with what you can afford
Don't feel pressured to contribute the maximum. Even small contributions provide valuable benefits:
Setting up your SEP-IRA
1. Choose a low-cost provider: Fidelity, Vanguard, Schwab offer $0 account fees
2. Open by December 31st or your tax deadline: More flexible than Solo 401(k)s
3. Start with target-date funds: Simple, diversified, automatic rebalancing
4. Automate contributions: Set up monthly transfers of 20-25% of your monthly profit
SEP-IRA advantages for beginners
Building good habits
Treat SEP-IRA contributions like a business expense. Every month, set aside 20-25% of your profit for retirement. This builds the discipline you'll need as your income grows.
Key takeaway: New freelancers can contribute roughly 23% of Schedule C profit to a SEP-IRA, making it the simplest retirement plan to understand and manage.
Key Takeaway: SEP-IRAs are ideal for new freelancers, allowing contributions of roughly 23% of Schedule C profit with simple setup and no complex calculations.
Sources
- IRS Publication 560 — Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
- IRS SEP Plan FAQs — Simplified Employee Pension Plan Frequently Asked Questions
Reviewed by James Okafor, Self-Employment Tax Specialist on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.