SEP IRA Calculator: Max Contribution & Tax Savings 2026

How your SEP IRA contribution is worked out

On the defaults — $100,000.00 of net business profit, a 25% elected rate, a 22% marginal tax rate, 20 years to retirement and a 7% return — the self-employment tax is $14,129.55, half of it is $7,064.78, the net adjusted SE income is $92,935.23, the effective rate is 20%, the maximum contribution is $18,587.05, the tax saved is $4,089.15 and the future value is $761,985.06. The whole calculation is five moves: work out your SE wages, work out the self-employment tax, subtract half of it to get net adjusted income, apply the effective rate, and cap the result at $72,000.

Six things about the model are worth stating plainly. First, the 20% figure is NOT a different limit — it is what the 25%-of-compensation rate works out to for a self-employed person once the contribution is subtracted from their own income: 25% ÷ (1 + 25%) = 20%. Second, an employer must contribute the SAME percentage for every eligible employee — no picking favourites. Third, a SEP IRA can sit alongside a 401(k) or IRA, but the combined limits still apply. Fourth, contributions for a tax year can be made up to the tax-filing deadline including extensions. Fifth, the Social Security wage base caps the 12.4% part of SE tax at $184,500 of SE wages for 2026. And sixth, this is federal only — state treatment varies.

And the number that catches people out: on the employee path the same 25% rate gives a bigger contribution. At $80,000.00 of compensation the contribution is $20,000.00, the tax saved is $4,400.00 and the future value is $819,909.85 — $1,412.95 more contribution than the sole-proprietor path on $100,000.00 of profit, because no self-employment tax comes off first.

The worked example, line by line

Setup: net business profit $100,000.00, elected rate 25%, marginal tax rate 22%, 20 years to retirement, annual return 7%.

Line 1 — SE wages. SE wages are 92.35% of profit: $100,000.00 × 92.35% = $92,350.00.

Line 2 — self-employment tax. The 12.4% Social Security part on $92,350.00 is $11,451.40 (below the $184,500.00 wage base, so no cap bites); the 2.9% Medicare part is $2,678.15; the 0.9% additional Medicare tax is $0.00, because $92,350.00 is below the $200,000.00 threshold. Total: $11,451.40 + $2,678.15 + $0.00 = $14,129.55.

Line 3 — half the SE tax and net adjusted income. Half of $14,129.55 is $7,064.78. Net adjusted SE income is $100,000.00 − $7,064.78 = $92,935.23.

Line 4 — the effective rate. The elected rate is 25% of compensation, but the contribution itself reduces the income it is calculated on: 25% ÷ (1 + 25%) = 20%.

Line 5 — the maximum contribution. 20% × $92,935.23 = $18,587.05, below the $72,000.00 cap for 2026, so the cap does not bite.

Line 6 — the tax saved. 22% × $18,587.05 = $4,089.15.

Line 7 — the future value. The contribution is made at the end of each year for 20 years at 7%: $18,587.05 × ((1.07²⁰ − 1) ÷ 0.07) = $18,587.05 × 40.9955 = $761,985.06. Rounding convention: totals are computed from unrounded values, so rounded parts may differ by a cent from their rounded sum — half the SE tax ($7,064.78) plus net adjusted income ($92,935.23) is $100,000.01, a cent over the $100,000.00 profit, because the unrounded half is $7,064.775.

Every branch, checked

Profit $150,000: Profit $150,000.00, SE tax $21,194.33, net adjusted $139,402.84, effective rate 20.00%, contribution $27,880.57, tax saved $6,133.72, future value $1,142,977.59 — 50% more profit gives 50% more contribution, because nothing is capped yet and the effective rate does not change.

Profit $200,000: Profit $200,000.00, SE tax $28,234.30, net adjusted $185,882.85, effective rate 20.00%, contribution $37,176.57, tax saved $8,178.85, future value $1,524,071.79. SE wages are $184,700.00, just over the $184,500.00 wage base, so the 12.4% Social Security part is capped at $184,500.00 — $22,878.00 — while the 2.9% Medicare part still applies to all $184,700.00.

Rate 10%: Profit $100,000.00, SE tax $14,129.55, net adjusted $92,935.23, effective rate 9.09%, contribution $8,448.66, tax saved $1,858.70, future value $346,356.85. A 10% elected rate works out to 10% ÷ (1 + 10%) = 9.09% effective, so the contribution is less than half the 25% case — the effective rate is not the elected rate.

Marginal 12%: Profit $100,000.00, SE tax $14,129.55, net adjusted $92,935.23, effective rate 20.00%, contribution $18,587.05, tax saved $2,230.45, future value $761,985.06. The marginal rate changes only the tax saved — 12% × $18,587.05 = $2,230.45 — never the contribution or the future value.

Marginal 32%: Profit $100,000.00, SE tax $14,129.55, net adjusted $92,935.23, effective rate 20.00%, contribution $18,587.05, tax saved $5,947.85, future value $761,985.06. At 32% the same $18,587.05 contribution saves $5,947.85 of tax — $1,858.70 more than at the 22% default.

Years 30: Profit $100,000.00, SE tax $14,129.55, net adjusted $92,935.23, effective rate 20.00%, contribution $18,587.05, tax saved $4,089.15, future value $1,755,746.89. Ten more years of contributions and growth more than doubles the future value, from $761,985.06 to $1,755,746.89.

Return 5%: Profit $100,000.00, SE tax $14,129.55, net adjusted $92,935.23, effective rate 20.00%, contribution $18,587.05, tax saved $4,089.15, future value $614,598.38. Two points less return costs $147,386.68 of future value — the growth assumption is the biggest lever on the outcome.

The reverses, worked backwards

Profit for a max contribution of exactly $25,000: $134,502.28 — the exact profit is $134502.2837. At $134,502.28 the contribution is $25,000.00 and the tax saved is $5,500.00; $1 less, $134,501.28, it is $24,999.81. You need about $34,502.28 more profit than the $100,000.00 default to contribute $25,000.00. The star is DOLLARS.

Elected rate for a $10,000 contribution at profit $100,000: 12.06% — the exact rate is 12.0576%. At 12.06% the contribution is $10,001.77; 12.05% gives $9,994.37; 12.07% gives $10,009.17. The displayed rate is a 2dp percent — the exact rate is 12.0576%, and rounding it to 12.06% moves the contribution by $1.77. The star is a PERCENT.

Years for a future value of at least $1,000,000: 24 years — the smallest term that gets there. At 24 years the future value is $1,081,332.40; 23 years gives $993,219.96; 25 years gives $1,175,612.71. This is a step reverse: years come in whole numbers, so there is no exact 24-point-something. The star is YEARS.

Profit for tax saved of exactly $5,000: $122,274.80 — the exact profit is $122274.8034. At $122,274.80 the tax saved is $5,000.00 and the contribution is $22,727.27; $1 less, $122,273.80, it is $4,999.96. The star is DOLLARS.

Marginal rate for tax saved of exactly $3,000: 16.14% — the exact rate is 16.1403%. At 16.14% the tax saved is $2,999.95; 16.13% gives $2,998.09; 16.15% gives $3,001.81. The displayed rate rounds down, so it lands one cent under $3,000.00. The star is a PERCENT.

Annual return for a future value of exactly $1,000,000 in 20 years: 9.45% — the exact return is 9.4472%. At 9.45% the future value is $1,000,310.89; 9.44% gives $999,182.83; 9.46% gives $1,001,440.37. A return of 9.45% is what it takes for the default $18,587.05 a year to reach a million in 20 years. The star is a PERCENT.

What the defaults assume

The self-employment tax is 12.4% × min(SE wages, $184,500.00) + 2.9% × SE wages + 0.9% × the part of SE wages above $200,000.00 (additional Medicare tax, single threshold, IRS Notice 2025-67 for the 2026 limits); SE wages are 92.35% of net business profit; net adjusted SE income is profit minus half the SE tax; the effective rate is the elected rate ÷ (1 + elected rate); the contribution is capped at $72,000.00 for 2026; the employee contribution is the elected rate × min(compensation, $360,000.00), capped at $72,000.00; the tax saved is the marginal rate × the contribution; and the future value assumes the contribution is made at the end of each year for the full term at a constant return. At the edges the model stays honest: with profit of $0.00, Profit $0.00, SE tax $0.00, net adjusted $0.00, effective rate 20.00%, contribution $0.00, tax saved $0.00, future value $0.00 — no profit, no contribution; that is the model at its boundary, not an error. With profit of $500,000.00, Profit $500,000.00, SE tax $38,624.50, net adjusted $480,687.75, effective rate 20.00%, contribution $72,000.00, tax saved $15,840.00, future value $2,951,675.45 — the uncapped contribution would be $96,137.55, but the $72,000.00 cap bites, and the SE tax includes $2,355.75 of additional Medicare tax on the SE wages above $200,000.00; half the SE tax is $19,312.25. With employee compensation of $400,000.00, Compensation $400,000.00, contribution $72,000.00, tax saved $15,840.00, future value $2,951,675.45 — the uncapped contribution is $90,000.00 (25% of the $360,000.00 compensation cap), capped at $72,000.00. With an elected rate of 0%, Profit $100,000.00, SE tax $14,129.55, net adjusted $92,935.23, effective rate 0.00%, contribution $0.00, tax saved $0.00, future value $0.00 — a 0% rate means no contribution. With 1 year to retirement, Profit $100,000.00, SE tax $14,129.55, net adjusted $92,935.23, effective rate 20.00%, contribution $18,587.05, tax saved $4,089.15, future value $18,587.05 — one contribution, no growth yet. With a 0% return, Profit $100,000.00, SE tax $14,129.55, net adjusted $92,935.23, effective rate 20.00%, contribution $18,587.05, tax saved $4,089.15, future value $371,740.90 — 20 × $18,587.05, just the contributions added up. Rounding convention: totals are computed from unrounded values, so rounded parts may differ by a cent from their rounded sum.

Output · formula · meaning

Who uses this

• The freelancer working out what they can put away: they learn that $100,000.00 of profit allows a $18,587.05 SEP contribution that saves $4,089.15 of tax — and they check the $134,502.28 reverse to see what profit it takes to contribute $25,000.00.
• The small employer setting up a plan for their team: they learn that the same percentage must go to every eligible employee — and they check the employee branch to see that $80,000.00 of compensation at 25% is a $20,000.00 contribution.
• The high earner checking the cap: they learn that $500,000.00 of profit would allow $96,137.55 uncapped, but the contribution stops at $72,000.00 — and they check the $400,000.00 employee edge to see the same cap bite on the compensation side.
• The saver asking when they reach a million: they learn that $18,587.05 a year at 7% needs 24 years to reach $1,081,332.40 — and they check the 9.45% reverse to see what return it would take to get there in 20 years instead.

Accuracy & limitations

The math is first-principles: SE wages are 92.35% of net business profit; the self-employment tax is 12.4% × min(SE wages, $184,500.00) + 2.9% × SE wages + 0.9% × the part of SE wages above $200,000.00 (additional Medicare tax, single threshold); net adjusted SE income is profit minus half the SE tax; the effective rate is the elected rate ÷ (1 + elected rate); the contribution is the effective rate × net adjusted SE income, capped at $72,000.00 for 2026 (IRS Notice 2025-67); the employee contribution is the elected rate × min(compensation, $360,000.00), capped at $72,000.00; the tax saved is the marginal rate × the contribution; and the future value assumes the contribution is made at the end of each year for the full term at a constant return. Every figure is rounded to cents half-up, and the totals are computed from unrounded values, so rounded parts may differ by a cent from their rounded sum. What the model cannot do is file YOUR return: it is federal only — state treatment varies; it does NOT model the additional Medicare tax threshold for married couples filing jointly ($250,000.00); it assumes the same profit and the same contribution every year; it assumes a constant return, and real returns vary; it does NOT model the combined limits when a SEP sits alongside a 401(k) or IRA; and it does NOT check whether your employees are eligible or what percentage you must give them. Use it to judge what a SEP IRA is worth to you, then check the current IRS limits and a tax adviser before you contribute.

Frequently asked questions