How the SEP IRA Calculator Works
A SEP IRA lets self-employed individuals and small business owners make substantial, tax-deductible retirement contributions — often far more than a traditional or Roth IRA allows.
This SEP IRA calculator computes:
- Maximum SEP IRA Contribution — the lesser of your percentage-based amount or the IRS dollar limit
- Effective Contribution Rate — your contribution as a percentage of compensation
- Estimated Tax Savings — the potential reduction in taxes owed
- Compensation Remaining — what’s left after the contribution
SEP IRA Contribution Formula
Max Contribution = MIN(Compensation × Contribution %, IRS Annual Limit)
Estimated Tax Savings = Max Contribution × Marginal Tax Rate
SEP IRA Examples
Example 1: Self-Employed Consultant
| Variable | Value |
|---|---|
| Annual Compensation | $120,000 |
| Contribution Percentage | 20% |
| Max Contribution | $24,000 |
| Est. Tax Savings (24%) | $5,760 |
Example 2: Higher-Income Business Owner
| Variable | Value |
|---|---|
| Annual Compensation | $300,000 |
| Contribution Percentage | 25% |
| IRS Annual Limit | $70,000 |
| Max Contribution | $70,000 (capped by IRS limit) |
Who Benefits from the SEP IRA Calculator?
This SEP IRA contribution calculator is designed for:
- Self-employed individuals maximizing tax-advantaged retirement savings
- Small business owners planning contributions for themselves and employees
- Freelancers with variable income estimating annual contribution room
- Financial planners modeling client retirement strategies
SEP IRA Calculator Frequently Asked Questions
What is a SEP IRA?
A SEP IRA (Simplified Employee Pension) is a retirement plan that allows self-employed individuals and small business owners to make tax-deductible contributions to their own and their employees’ retirement accounts.
How much can I contribute to a SEP IRA?
SEP IRA contributions are generally limited to the lesser of 25% of compensation or the IRS annual dollar limit, which is adjusted periodically for inflation.
Are SEP IRA contributions tax-deductible?
Yes. SEP IRA contributions are generally tax-deductible as a business expense or above-the-line deduction, reducing your taxable income for the year.
Can employees contribute to their own SEP IRA?
No. Only the employer (including a self-employed individual for themselves) makes SEP IRA contributions; employees cannot make their own salary-deferral contributions to a SEP IRA.
IRS contribution limits are adjusted periodically for inflation. Please verify the current limit before relying on these results for tax filing purposes.