SEP IRA Contribution Calculator
Your SEP contribution from profit or salary, with the self-employed rate table built in.
What it does
A SEP IRA is the simplest retirement plan for a one-person business: the employer contributes, the paperwork is light, and the allowed percentage is generous. The catch is arithmetic. The advertised 25 % rate applies to compensation, and for a sole proprietor compensation is not raw profit.
The tool above runs the full chain for you. Enter business income and a plan rate, and it returns the contribution for the year, the effective rate that the self-employed actually apply to net earnings, and the self-employment tax that sits in the middle of the calculation.
The defaults show a sole proprietor with $80,000 of profit and a 25 % plan rate: SE tax of $11,303.64, net earnings of $74,348.18, an effective 20 % rate, and a $14,869.64 contribution. Toggle to the W-2 view and an $80,000 salary at the same rate produces a flat $20,000.00.
The method follows the worksheets in IRS Publication 560, including its Rate Table for the Self-Employed, and the SE tax rules from IRS Topic 554. Dollar caps and the Social Security wage base change over time, so the note under the result reminds you to check the current-year numbers before filing.
How to use
- Pick whether you file as self-employed or draw W-2 salary from your own company.
- Set the plan rate; 25 % is the legal maximum for a SEP.
- Enter annual profit, or salary in the W-2 view.
- Read the contribution, then the effective rate the IRS worksheet uses.
- Check the note for the SE tax split and the assumptions behind it.
Formula
- profit
- Net profit from self-employment for the year.
- reduced rate
- The plan rate restated against net earnings; 25 % becomes 20 %.
- net earnings
- Profit minus half of the SE tax, the base the reduced rate applies to.
- SE tax
- Profit x 92.35 % x 15.3 %, the 12.4 % Social Security plus 2.9 % Medicare pieces.
The 92.35 % factor credits the employee-style half of Social Security and Medicare before computing the tax, and the 15.3 % stacks the 12.4 % Social Security rate on the first slice of earnings up to the wage base with the 2.9 % Medicare rate that never stops. Deducting half of the SE tax shrinks the base slightly, which is why dividing 25 by 125 turns the plan rate into a 20 % rate on net earnings. This calculator assumes profit sits below the Social Security wage base; above it the 12.4 % piece stops and the deduction changes. A SEP also cannot exceed the annual contribution ceiling or whatever lower rate and eligibility rules your plan document sets.
Worked example
Example: sole proprietor, $80,000 profit, 25 % plan rate
Defaults: self-employed, 25 % plan rate, $80,000 net profit.
- SE tax: 80,000 x 0.9235 x 0.153 = $11,303.64.
- Deduction: half the SE tax is $5,651.82, so net earnings = $74,348.18.
- Reduced rate: 25 / 125 = 20 %.
- Contribution: 0.20 x 74,348.18 = $14,869.64.
- The W-2 view of the same numbers is simple: 80,000 x 25 % = $20,000.00.
Reference table
| Plan rate | Effective rate on net earnings |
|---|---|
| 25 % | 20 % |
| 20 % | 16.67 % |
| 15 % | 13.04 % |
| 10 % | 9.09 % |
| 5 % | 4.76 % |
Limits
- Assumes profit below the Social Security wage base; above it the SE tax changes.
- The IRS contribution ceiling and compensation cap change most years.
- A plan can set its own lower rate or stricter eligibility rules.
- State taxes and spousal arrangements are not modeled.
Common mistakes
- Applying 25 % straight to profit and overstating the contribution.
- Forgetting that half the SE tax is deducted before the rate applies.
- Growing a business past the wage base without updating the math.
- Assuming all profit counts when the IRS caps compensation.
- Ignoring the plan document's own rate and eligibility terms.
Try it yourself
Quick checks. Answers sit tucked under each question.
Self-employed, $60,000 profit, 15 % plan rate?
SE tax $8,477.73, net earnings about $55,761.14, effective rate 13.04 %, contribution $7,273.19.
W-2 owner with a $50,000 salary at 10 %?
$5,000.00, because W-2 pay uses the plan rate directly with no SE tax step.
Why does a 25 % plan rate become 20 %?
Because 25 / 125 = 20 %: the plan rate is measured against the pre-deduction base, and net earnings sit 20 % below it.
Questions
What is a SEP IRA?
A Simplified Employee Pension: an employer-funded retirement account with contribution limits far above a traditional IRA and almost no annual filing for the business.
How much can I contribute?
Up to 25 % of compensation under the plan rate, capped by the IRS annual ceiling. For the self-employed that becomes the effective rate on net earnings shown above.
Can I contribute as a W-2 owner of my own company?
Yes. The business can fund a SEP for you as an employee using the plan rate against your salary.
Is the SE tax estimate exact?
It follows the 92.35 % x 15.3 % formula on profit, which is exact below the Social Security wage base and approximate above it.
Can I run a SEP alongside another retirement plan?
Often yes, but combined limits and plan terms matter; check the current IRS rules and your plan documents before stacking contributions.
When is the contribution due?
SEP contributions follow the business tax filing deadline including extensions, which is later than the IRA deadline.
Sources
- IRS Publication 560, Retirement Plans for Small Business
- IRS: Simplified Employee Pension Plan (SEP)
- IRS Topic 554: Self-Employment Tax