SEP IRA Contribution Limits for 2025 and 2026

A SEP-IRA is a tax-deferred retirement plan for self-employed people and small business owners. Like all retirement savings programs, there are limits, rules and regulations you need to know about to get the most out of your savings. We analyze the contribution limits and deadlines below for SEP-IRAs, but a financial advisor may help you create a financial plan based on your retirement needs and goals.

SEP-IRA Contribution Limits for 2025 and 2026

Unlike other retirement plans, employees do not make their contributions to a SEP-IRA. Only the owner of the small business can make them for employees. Employees are often free to still contribute to a separate IRA or Roth IRA. There are a couple of limitations when it comes to SEP-IRA contributions.

• An employer may contribute to a worker’s SEP-IRA up to 25% of that employee’s compensation, capped at $72,000 for the 2026 tax year. Only the first $360,000 of an employee’s compensation can be counted when calculating the contribution. These rules apply to both small-business employees and self-employed individuals. For 2025, the maximum contribution was 25% of eligible earnings up to $70,000, with compensation considered up to $350,000.

• Employees who participate in a Salary Reduction Simplified Employee Pension (SARSEP) established before 1997 may continue making elective salary deferral contributions. These deferrals follow the standard 401(k)-style limits: up to $24,500 in 2026 and $23,500 in 2025, plus catch-up contributions if the participant is age 50 or older. Employer contributions are separate and remain subject to the usual SEP percentage limits.

It’s important to note that you cannot make elective salary deferrals or catch-up contributions to regular SEP plans. You also cannot contribute property to a SEP-IRA. All contributions must be made in cash. If you accidentally contributed more than the limits allow, visit the IRS website to learn how to correct the contribution mistake.

What Is the SEP IRA Contribution Deadline? 

You must make your SEP-IRA contributions by each year’s federal income tax due date, on or around April 15 of the year following your contribution year. For the 2025 contribution year, the deadline is April 15, 2026.

If you have a tax extension, you must make the contributions by the end of the extension period. If you miss the deadline, you cannot deduct any SEP plan contributions from that year’s return. You can deduct the contributions on the following year’s tax return. To report your contributions, you use Form 5498.

What Is a SEP-IRA?

A SEP-IRA is a retirement savings vehicle tailored toward self-employed workers and small business owners. A SEP-IRA is a traditional IRA under a SEP plan. “SEP” stands for Simplified Employee Pension. Essentially, a SEP-IRA serves as an easier way to save, tax-deferred, for retirement for small business employees and the self-employed.

It’s important to know whether you’re eligible to open a SEP-IRA. First off, you must be a sole proprietor, a business owner in a partnership or earn self-employment income. You may also open a SEP-IRA if you have a side gig that earns self-employment income.

SEP-IRAs provide a few advantages for those who can use them. For starters, SEP-IRA contributions qualify as tax-deductible business expenses. SEPs also tend to come with lower administrative costs than other retirement accounts. Plus, as an employer, you don’t have to contribute every single year. You contribute when it makes sense for your business, allowing for some flexibility.

You must start making required minimum distributions (RMDs) from your SEP-IRA by age 73 (75 if you turn 74 after Dec. 31, 2032). If you make any withdrawals before age 59 ½, you’ll trigger a 10% penalty.

SEP-IRA Contribution Rules

As an employer, you will need to make contributions to your employees’ SEPs proportional to each employee’s wages. Each employee will receive contributions of the same percentage. In the same vein, you must contribute the same percentage to your employees’ plans as your own. If you are self-employed, you will base your contribution on net profit, minus one-half of the self-employment tax.

You do not have to contribute to a SEP each year. When you do make contributions, though, you must make them for all eligible employees. You must also make a contribution even for a participant who is not employed on the last day of the year.

Participating in a SEP plan does not necessarily limit you from making regular IRA contributions. You will have to make sure your SEP plan allows for it. If you are 50 or older, you may also make IRA catch-up contributions. Those contributions must still follow regular IRA contribution limits. These contributions may limit the amount of the regular IRA contribution that you can deduct on your income tax return, as well as the amount you can contribute to other IRAs like a Roth IRA.

If you’re self-employed, SEP IRA contributions can influence your taxable income. Try our income tax calculator to explore how different income levels may affect your tax outcome.

SEP-IRA Tax Implications

When it comes to deducting SEP-IRA contributions on your business’ tax return, you can deduct up to the lesser amount of your contributions or 25% of your compensation. Employees are not subject to taxes according to their employer’s contributions. This is because SEP-IRA contributions are not included in an employee’s gross income. If you are self-employed, the IRS has different steps to figure out your own maximum deduction.

If you make excess contributions to a SEP-IRA, then those are considered part of an employee’s gross income. To avoid a tax penalty, you will have to withdraw that excess amount before the due date of your federal tax return. Should you fail to make the withdrawal on time, you’ll face a 6% tax on the excess contributions. In addition, the employer may face a 10% excise tax on the excess amount.

To reap all the tax benefits of a SEP plan, you’ll have to meet all of the IRS’s requirements. If you make any mistakes regarding contributions or withdrawals, you’ll lose out on those tax benefits. However, the IRS does leave room for you to correct any mistakes before your federal tax return due date.

Bottom Line

A SEP plan allows small business owners and the self-employed to participate in structured retirement accounts. It’s always important to keep up with account contribution limits, SEP-IRAs included. This way, you can make the most of your IRA, but also avoid some big tax hits. Luckily, if you do accidentally make an excess contribution, the IRS allows you some time and options to reverse it.

Tips for Saving for Retirement

• If you need help saving and planning for retirement, consider enlisting a professional. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• If you’re using a 401(k), don’t leave any employer match on the table. This is technically a 100% return on your investment, so you may want to try and take advantage of it.

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