What This Calculator Does
You run a freelance business or a small S-corp and want a retirement plan that is easy to set up and lets you stash a lot of money. A SEP IRA fits that description. It takes 20 minutes to open, has no annual filing requirement, and for 2026 lets you contribute up to $72,000. This calculator tells you exactly how much you can put in based on your income, and projects what that contribution grows to by retirement.
Choose your business type, enter your net profit or W-2 salary, your current balance, years to retirement, and expected return. The tool applies the 2026 IRS limits, handles the self-employed adjustment that turns the headline 25% rate into an effective 20%, and projects your balance with annual contributions and compounding growth.
According to the IRS SEP contribution limits page, the 2026 SEP IRA limit is the lesser of 25% of compensation or $72,000. For the self-employed, the 25% is measured on net earnings after the half-SE-tax deduction, which works out to about 20% of net profit. That gap catches many sole proprietors who multiply their profit by a flat quarter and overcontribute.
Inputs Required
- Business Type: Self-employed sole proprietor or S-corp owner with W-2 wages
- Net Profit or W-2 Salary: Schedule C net profit for sole proprietors, or W-2 wages for S-corp owners
- Current SEP IRA Balance: What you have saved so far
- Years to Retirement: Your accumulation window
- Expected Annual Return: Your assumed investment growth rate
Outputs Provided
- Maximum 2026 Contribution: The lesser of 25% of compensation or $72,000
- Estimated Tax Savings: Federal income tax saved at an assumed 24% marginal rate
- Projected Balance at Retirement: Your estimated balance after years of contributions and growth
- Total Contributions and Growth: The split between money you put in and money the market earned
How the Calculation Works
The SEP IRA math differs depending on whether you are a sole proprietor or an S-corp owner. The headline rate is 25% of compensation, but the self-employed version uses a reduced base.
S-Corp: Contribution = min(W-2 Wages x 25%, $72,000)
Self-Employed: Net Earnings = Net Profit - Half SE Tax
Contribution = min(Net Earnings x 20%, $72,000)
Compensation Cap = $360,000
For a sole proprietor with $150,000 in net profit: SE earnings are 150,000 x 0.9235 = $138,525. SE tax is roughly $21,194, so half is $10,597. Adjusted net earnings are 150,000 - 10,597 = $139,403. The contribution is 139,403 x 0.20 = $27,881, well under the $72,000 cap. A flat 25% of $150,000 would be $37,500, which would be an overcontribution subject to a 6% excise tax.
For an S-corp owner paying herself a $100,000 W-2 salary: the contribution is simply 100,000 x 25% = $25,000. The S-corp structure lets you apply the full 25% to wages directly, with no self-employment adjustment. The remaining business profit distributed to you as a shareholder is not compensation for SEP purposes.
How to Use the Calculator
- Select your business type. Sole proprietors, partnerships, and LLCs taxed as sole props use the self-employed mode. S-corp owners use the W-2 mode.
- Enter your net profit from Schedule C, or your W-2 salary if you are an S-corp owner.
- Enter your current SEP IRA balance from your most recent statement.
- Set your years to retirement and expected annual return.
- Read your maximum contribution and projected balance. The tax savings figure uses an assumed 24% marginal rate as an illustration.
Example Calculations
Example 1: A Freelancer at $120,000 Net Profit
A freelance consultant has $120,000 in Schedule C net profit. Her SE earnings are $110,820, SE tax is about $16,955, and half is $8,478. Adjusted net earnings are 120,000 - 8,478 = $111,522. Her maximum SEP contribution is 111,522 x 0.20 = $22,304. At a 24% marginal rate, that saves about $5,353 in federal income tax. If she also owes self-employment tax, she should account for that separately using our Self-Employment Tax Calculator.
Example 2: An S-Corp Owner at $200,000 Salary
An S-corp owner pays himself a $200,000 W-2 salary and distributes the remaining profit as shareholder distributions. His SEP contribution is 200,000 x 25% = $50,000, under the $72,000 cap. The full 25% applies because W-2 wages are the compensation base, with no self-employment adjustment. His tax savings at 24% are $12,000. The S-corp structure lets him contribute more than a sole proprietor with the same total income, because the SE tax adjustment does not apply.
Real World Scenarios
A High Earner Hitting the Dollar Cap
A sole proprietor with $400,000 in net profit would compute a contribution of about $78,000 at the 20% effective rate, but the $72,000 dollar cap limits her to $72,000. She cannot contribute more even though her income is high. For earners above roughly $360,000 in net profit, the dollar cap is the binding constraint. A Solo 401(k) might let her save more because it adds a flat employee deferral of $24,500 on top of the employer portion.
Comparing SEP IRA to Solo 401(k)
A freelancer with $100,000 in net profit can put about $18,587 into a SEP IRA at the 20% effective rate. A Solo 401(k) lets her contribute the same employer portion plus a $24,500 employee deferral, for a total of about $43,087, while still staying under the $72,000 annual additions limit. The Solo 401(k) requires more paperwork and a plan filing once the balance exceeds $250,000, but for most sole proprietors it allows much higher contributions at the same income level.
Hiring Your First Employee
A small business owner sets up a SEP IRA for himself and then hires a part-time employee. SEP IRA rules require the same contribution percentage for all eligible employees. If he contributes 20% of his own compensation, he must also contribute 20% of the employee's compensation. This can make a SEP IRA expensive once you have staff. A Solo 401(k) or a SEP with tighter eligibility rules (age 21, 3 of 5 years, $800 minimum compensation) can limit the cost.
Common Mistakes to Avoid
- Using 25% of net profit instead of 20%: The self-employed effective rate is about 20% of net profit, not 25%. Multiplying by a flat quarter overstates the limit and creates excess contributions subject to a 6% excise tax.
- Forgetting the equal-percentage rule for employees: If you have eligible employees, you must contribute the same percentage of their compensation as your own. This can be a surprise cost for growing businesses.
- Missing the deadline: You can set up and fund a SEP IRA up to the tax filing deadline, including extensions. This makes it one of the few retirement plans you can open after the year ends, but you still need to act before October 15 if you extended.
- Not comparing to a Solo 401(k): For sole proprietors with no employees, a Solo 401(k) usually allows higher contributions at the same income because of the employee deferral. Run both before choosing.
Limitations of This Calculator
This tool estimates your 2026 SEP IRA contribution using simplified formulas. The self-employed calculation approximates the IRS Publication 560 worksheet, which is the authoritative method. The tax savings figure uses an assumed 24% marginal rate and does not account for your actual bracket, state taxes, or the SE tax deduction interaction. The projection assumes constant income and contributions each year, which does not reflect variable freelance earnings. It does not model employee contributions, the equal-percentage rule, or the eligibility requirements. For an exact contribution figure, use the Publication 560 worksheet or consult a tax professional.
Authoritative Research and Resources
- IRS: SEP Contribution Limits - The official IRS page covering the 2026 dollar limit, the 25% rate, and the self-employed adjustment.
- IRS Publication 560: Retirement Plans for Small Business - The definitive IRS guide for SEP, SIMPLE, and qualified plans, including the self-employed contribution worksheet and the rate table.
For related tools, calculate your SE tax with our Self-Employment Tax Calculator, compare with our 401K Calculator, or project IRA savings with our IRA Calculator.