Key Takeaways
- A SEP IRA doesn't allow catch-up contributions at any age. Only the business can fund it, and catch-ups only apply to money employees defer from their own pay.
- A SEP IRA is a flexible, business-funded retirement plan for self-employed people and small businesses. In any year the business contributes, every eligible employee gets the same percentage of pay.
- The 2026 SEP IRA limit is the lesser of 25% of compensation or $72,000. If you're self-employed, your real cap works out to about 20% of net self-employment earnings.
- You can contribute to a SEP IRA and a Traditional or Roth IRA in the same year up to each respective contribution limit. One doesn't reduce the other.
- For a Traditional and Roth IRA, if you're 50 or older, your IRA limit rises to $8,600 in 2026. That's $7,500 plus a $1,100 catch-up, combined across all your IRAs.
What Is a SEP IRA and How Does It Work?
A SEP IRA (Simplified Employee Pension Individual Retirement Account) is a retirement plan for self-employed people. Freelancers, consultants, gig workers, and sole proprietors can all use one, even if they have no employees.
Unlike a Traditional or Roth IRA, a SEP IRA is funded by the business. Employees can’t make SEP IRA contributions on their own behalf. If you're self-employed, you make the contributions wearing your business owner hat.
SEP IRAs are also flexible. As a self-employed person, you’re both the employer and the employee, so you decide how much goes in each year. You’re not required to contribute every year, so you can adjust based on how your business is doing. Your contributions are also tax-deductible, so you can lower your tax bill while building your retirement savings.
Whoever sets up the SEP, one rule applies: in any year the business contributes, it must contribute to the SEP IRA of every eligible employee, using the same percentage of pay for everyone. For example, if the business contributes 10% of pay, every eligible employee receives 10% of their compensation.
- If you’re self-employed with no employees, you’re the only eligible employee, so you decide how much to contribute for yourself each year.
- If you have employees, you count as an eligible employee too. Whatever percentage you contribute for yourself, you must also contribute for each eligible employee.
What are the SEP IRA Contribution Limits for 2026?
SEP IRAs have some of the highest contribution limits available to the self-employed. In 2026, you can contribute up to 25% of your compensation, to a maximum of $72,000.
The IRS also limits how much income counts toward the calculation. In 2026, only the first $360,000 of compensation is used, and anything above that is ignored.
As covered above, the business contributes the same percentage of pay for every eligible employee. If you’re self-employed, though, figuring your own share takes an extra step.
How the SEP IRA Limit Works if You're Self-Employed
If you’re a sole proprietor or single-member LLC owner, the 25% doesn’t apply to your gross income. You first subtract half of your self-employment tax. Then the SEP contribution itself comes out of the total. In practice, that works out to about 20% of your net earnings from self-employment.
For example, say you earn $100,000 in net self-employment income. Your self-employment tax deduction would be about $7,065, so your maximum SEP contribution would be about $18,587. IRS Publication 560 has a worksheet to help you find your exact number.
Because of the $72,000 cap, you’ll max out once your net earnings (after deducting half your self-employment tax) reach $360,000, since 20% of $360,000 is $72,000. Earning more than that won’t increase how much you can contribute.
