---
title: "SEP IRA Profile: Contribution Limits"
description: "Sourced SEP IRA profile: 2026 limit lesser of 25% compensation or $72,000; compensation cap $360,000; employer-only contributions; no employee deferrals."
canonical: https://www.getswoopr.com/accounts/sep-ira/
source: "Swoopr Investment: https://www.getswoopr.com"
---

## Direct Answer

A SEP IRA (Simplified Employee Pension Individual Retirement Account) allows employers and self-employed individuals to make tax-deductible contributions to employee IRA accounts. The 2026 limit is the lesser of 25% of compensation or $72,000 (compensation capped at $360,000). Only the employer contributes; no employee elective deferrals are permitted.




# SEP IRA Profile: Contribution Limits, Rules and Eligibility



      

This profile cites IRS primary sources. It does not provide personalized tax or investment advice. Consult a tax professional for self-employment income calculations.






## What is a SEP IRA?



A SEP (Simplified Employee Pension) IRA is an employer-sponsored plan under IRC Section 408(k). The employer establishes a SEP plan agreement (typically IRS Form 5305-SEP) and makes contributions directly to Traditional IRA accounts in each eligible employee's name. There are no participant loans, no Roth options in a traditional SEP (though SECURE 2.0 now allows Roth SEP contributions if the plan document permits), and contributions vest immediately 100%.



SEP IRAs are popular among sole proprietors, partnerships, S-corporations and small businesses because of their low administrative complexity, high contribution ceilings and flexible annual contribution amounts (the employer can contribute different amounts each year, including zero).








## 2026 Contribution Limits



| Parameter | 2026 Amount |
| --- | --- |
| Maximum contribution | Lesser of 25% of compensation or $72,000 |
| Compensation cap (§401(a)(17)) | $360,000 |
| Maximum effective contribution | $72,000 (25% × $288,000+ comp) |



Source: IRS Notice 2025-67. For self-employed individuals (Schedule C filers), compensation = net self-employment income minus the deductible portion of self-employment taxes (half of SE tax). The effective rate is approximately 20% of net SE income before the SEP deduction itself (due to circular calculation). IRS Publication 560 includes a worksheet to calculate the exact deductible amount.








## Employee Eligibility Requirements



Employers must generally include all employees who meet all of the following:



- At least 21 years of age
- Worked for the employer in at least 3 of the last 5 years
- Earned at least $800 in compensation from the employer in the year (2026; indexed)



Employers may use less restrictive requirements but cannot use more restrictive ones. The same contribution percentage must be applied to all eligible employees. If one employee receives 15% of compensation as a SEP contribution, all eligible employees must receive the same percentage.








## RMDs and Distributions



SEP IRA funds are held in Traditional IRA accounts and follow all Traditional IRA rules for distributions and RMDs:



- Withdrawals taxed as ordinary income
- 10% early distribution penalty before age 59½ (same exceptions as Traditional IRA)
- RMDs begin at age 73 (born 1951-1959) or 75 (born 1960 or later)
- RMDs calculated separately for each Traditional/SEP IRA you own, but may be aggregated and taken from any one or combination








## Frequently Asked Questions







What is the SEP IRA contribution limit for 2026?


The 2026 SEP IRA contribution limit is the lesser of (1) 25% of the employee's compensation or (2) $72,000. For self-employed individuals, 'compensation' means net self-employment income reduced by one-half of self-employment taxes paid, making the effective contribution rate approximately 20% of net self-employment income before the deduction. The compensation used in this calculation is capped at $360,000. Source: IRS Notice 2025-67.






Can employees contribute to a SEP IRA?


No. SEP IRA contributions are made exclusively by the employer. Employees cannot make their own elective deferrals to a SEP IRA. Self-employed individuals act as both employer and employee and contribute to their own SEP IRA in the employer capacity.






How does a SEP IRA compare to a Solo 401(k) for self-employed individuals?


Both can reach the $72,000 limit in 2026, but a Solo 401(k) reaches higher contribution amounts at lower income levels due to the employee deferral layer ($24,500 plus profit-sharing). A SEP IRA allows only employer-side profit-sharing (25%/~20% of net SE income). SEP IRAs are simpler to establish with no annual Form 5500 filing requirement.











## References



- [IRS: SEP Plan FAQs](https://www.irs.gov/retirement-plans/sep-plan-faqs)
- [IRS Publication 560: Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)](https://www.irs.gov/publications/p560)
- [IRS: COLA Increases for Dollar Limitations on Benefits and Contributions](https://www.irs.gov/retirement-plans/cola-increases-for-dollar-limitations-on-benefits-and-contributions)
- [SECURE 2.0 Act of 2022 (Pub. L. 117-328)](https://www.congress.gov/bill/117th-congress/house-bill/2617/text)








**[Swoopr Editorial Team](https://www.getswoopr.com/authors/swoopr-editorial-team/)**



The Swoopr Editorial Team produces sourced investment education content for independent investors. This profile cites IRS primary sources verified as of September 2026. See our [editorial policy](https://www.getswoopr.com/legal/editorial-policy/) and [corrections policy](https://www.getswoopr.com/legal/corrections-policy/).