SEP-IRA Contribution Limits 2025: Complete Guide for Self-Employed

A SEP-IRA (Simplified Employee Pension) is the most powerful retirement account available to self-employed individuals and small business owners. With a contribution limit of $69,000 in 2025 — nearly 10x the traditional IRA limit — it's the fastest way to build tax-deferred retirement savings if you're self-employed.

SEP-IRA Contribution Limits 2025

• Maximum contribution: $69,000 (up from $66,000 in 2024)
• As a percentage: 25% of net self-employment income (after deductions)
• No catch-up contributions (unlike traditional IRA or SIMPLE IRA)
• Contribution deadline: Tax filing deadline plus extensions (October 15 with extension)

How to Calculate Your SEP-IRA Contribution

For self-employed individuals, the calculation is slightly complex because you can deduct half your self-employment tax, and the contribution itself reduces your income. The effective rate is 20% of net self-employment income (not 25%).

• Net self-employment income: $100,000
• Self-employment tax deduction (50% of SE tax): ~$7,065
• Adjusted income: $100,000 − $7,065 = $92,935
• SEP-IRA contribution: $92,935 × 20% = $18,587
• Use IRS Worksheet in Publication 560 for exact numbers

SEP-IRA vs Solo 401(k): Which Is Better?

• SEP-IRA limit: 25% of net income (up to $69,000) — simpler
• Solo 401(k) limit: $23,500 employee + 25% employer = up to $69,000 — same max, but employee portion lets you contribute more at lower income levels
• Solo 401(k) wins if income under $200,000 — you can contribute more
• SEP-IRA wins for pure simplicity — no annual filing until assets exceed $250,000
• SEP-IRA allows employees; Solo 401(k) for owner-only businesses

Who Can Open a SEP-IRA?

• Sole proprietors and freelancers
• Partnerships and LLCs
• S-corps and C-corps
• Anyone with self-employment income, even if also employed elsewhere
• You can contribute to a SEP-IRA and a Roth IRA in the same year

Tax Benefits of a SEP-IRA

Contributions are 100% tax-deductible. A freelancer in the 24% tax bracket who contributes $20,000 to a SEP-IRA saves $4,800 in federal taxes immediately. Money grows tax-deferred. Withdrawals in retirement are taxed as ordinary income.

How to Open a SEP-IRA

• Choose a brokerage: Fidelity, Vanguard, Schwab, or any major financial institution
• Complete Form 5305-SEP (IRS model form — takes 15 minutes)
• Each eligible employee gets their own SEP-IRA account
• No annual IRS filing required until assets exceed $250,000
• Can open and fund by tax deadline for the prior tax year