SEP IRA Contribution Limit 2026: How Much Can You Put In?

The SEP-IRA is one of the simplest ways for a self-employed person to save a large amount for retirement, and the limits are generous. The tricky part is that the number everyone quotes, 25% of pay, does not mean 25% of your profit when you are the owner. That mismatch is where most of the confusion comes from, and it is what I want to clear up here at Ecommerce Paradise.

I have sold online since 2010, and store income comes in lumps. A good year can leave you scrambling at tax time to figure out how much you can still put away. A SEP-IRA suits that situation, because you can set it up and fund it late. This guide covers the 2026 limits, how to figure your own contribution, the deadlines, what changes if you have employees and the mistakes that cause excess contributions.

If you are still deciding whether a SEP is the right plan, start with my pillar on how to start investing as a business owner. The head-to-head in solo 401(k) vs SEP IRA helps too.

Disclosure: I am not a registered investment adviser, broker-dealer or financial advisor, and this article is education, not personalized financial advice. Ecommerce Paradise may earn a commission if you request offers through the partner tools on this page, at no extra cost to you. Investing involves risk, including the possible loss of principal, and past performance does not guarantee future results. Confirm tax and contribution rules with a qualified tax professional. Information in this article is current as of October 2026.

SEP-IRA Contribution Limits for 2026 at a Glance

Here are the numbers that matter. They come from the IRS SEP contribution limits page. The plan rules come from the IRS SEP overview.

The compensation cap and the $800 minimum come from IRS Notice 2025-67.

Item	2026 figure	What it means
Percent of compensation	Up to 25%	The employer can contribute up to 25% of each employee’s pay
Dollar maximum per person	$72,000	The cap applies even if 25% of pay would be higher
Compensation cap	$360,000	Pay above this amount is ignored when figuring the 25%
Minimum compensation for eligibility	$800	An employee must earn at least this to be eligible
Employee contributions	Not allowed	Only the employer contributes
Catch-up contributions	Not permitted	Age 50 or older gets no extra SEP allowance
Contribution deadline	Return due date, with extensions	Per the IRS, for the year you want to claim

The contribution cannot exceed the lesser of the percentage limit or the dollar cap. For many owners, the percentage is the number that binds, not the $72,000.

Compare SEP-IRA providers and offers

The Two Limits: Percent of Pay and the Dollar Cap

A SEP has two ceilings, and you are held to whichever is lower. The first is a percentage of compensation, up to 25%. The second is the dollar cap, $72,000 for 2026. The IRS also limits how much compensation counts toward the 25% calculation, and for 2026 that compensation limit is $360,000 under Notice 2025-67.

Here is my own arithmetic for an employee, shown as an example. At 25% of pay, someone earning $288,000 hits exactly $72,000.

Above that pay level, the dollar cap is what stops you. Below it, the percentage controls. For most store owners, the percentage is the limit that matters, because very few people have the profit to reach the cap.

What the Plan Document Can Change

The IRS limits are maximums, not requirements. Your plan document can set a lower rate, and contributions are not required every year. The IRS SEP overview says you contribute for every participant who performed services for the year, and that the rate must be the same for all eligible employees. If your plan sets a lower rate, that lower rate controls.

How Much Can a Self-Employed Owner Contribute?

This is the question behind most searches for “SEP IRA contribution limit.” The IRS says that for a self-employed person, compensation is net self-employment earnings minus one-half of self-employment tax and minus contributions to your own SEP-IRA. In Publication 560, the IRS also describes a 20% figure for owners: for you, the limit is 20% of net earnings from self-employment, rather than 25%.

That is not a typo, and it is not a penalty. Because your own contribution reduces the earnings it is calculated from, the math produces an effective rate of 20% for a 25% plan. The IRS says you determine the deduction for contributions to your own SEP-IRA indirectly by reducing the contribution rate in your plan, and it points to the rate table and worksheets in Chapter 5 of the publication.

A Step-by-Step Example

These examples are my own arithmetic using the IRS rules above. They are illustrations, not tax advice, and your return may differ. I use Schedule C style net profit below the Social Security wage cap, and I figure self-employment tax as 15.3% on 92.35% of net profit, per the IRS self-employment tax topic.

Net profit (example)	Half of SE tax	Earnings after that deduction	Rough SEP maximum at 20%
$40,000	about $2,826	about $37,174	about $7,435
$60,000	about $4,239	about $55,761	about $11,152
$75,000	about $5,299	about $69,701	about $13,940
$100,000	about $7,065	about $92,935	about $18,587

So an owner with $100,000 of net profit could contribute roughly $18,600 to a SEP, not $25,000. If you use a provider’s calculator or a CPA, expect numbers close to these but not identical, because real returns have other deductions and details.

The Deadline: Why SEPs Suit Lumpy Income

The IRS says you can set up a SEP for a year as late as the due date of your business income tax return for that year, including extensions, and contributions are due by the due date of your federal income tax return for the year, including extensions. That is the biggest practical advantage for an ecommerce owner. You can close the year, learn your real profit, and then decide how much to contribute.

Schwab’s SEP IRA page describes the same idea in plain language, saying the plan must be established by the business’s tax-filing deadline, generally April 15 plus extensions, and that contributions can be made until the actual filing deadline including extensions. That page also says you are not required to contribute every year.

Which Tax Year Does the Contribution Count For?

A contribution made in the spring is designated for the prior tax year if you are within the deadline, and you should label it that way with your provider. Keep a record of the date and the tax year you chose, because a mislabeled deposit can turn into an excess contribution. Your CPA can tell you how to report it.

Build the Profit Before You Plan the Contribution

A SEP only works if the business generates profit. Our done-for-you build is designed to get a high-ticket store live with the supplier and legal groundwork handled.

See the Done-For-You Store Build →

If You Have Employees: The Rules Change

A SEP can cover a team as well as a solo owner, but that is also where owners get caught off guard. The IRS says eligible employees must be 21, have worked for you in at least 3 of the last 5 years and have received at least the SEP minimum compensation, which is $800 for 2026. You may be less restrictive but not more restrictive.

Once an employee is eligible, you contribute the same percentage of pay for that person as you do for yourself, with your own figure calculated through the self-employed formula. The IRS also says employees are always 100% vested in SEP-IRA funds, and that contributions are not subject to income tax withholding, Social Security, Medicare or FUTA. Do not report the contribution in Box 1 of Form W-2, and check the Retirement Plan box in Box 13.

My own illustration: if your plan contributes 10% and an eligible employee earns $50,000, the contribution for that employee is $5,000. For you, a 10% plan rate works out to an effective rate of about 9.1% of your earnings after the half-SE-tax deduction (10 divided by 110). That is the same logic that turns 25% into 20%, applied at a lower rate.

Who You Can Exclude

The IRS lists two permissible exclusions: employees covered by a union agreement where retirement benefits were bargained in good faith, and nonresident aliens with no U.S.-source wages or services compensation from you. Contractors who are truly independent are not your employees, but classification is a legal question, so talk to a CPA or attorney. My guide to legal essentials for high-ticket dropshipping covers the broader setup issues.

What Counts as Compensation for S-Corp Owners and Partners

The self-employed formula applies to sole proprietors and other owners whose income is self-employment earnings. If you own an S-corp and take a W-2 salary, the picture changes, because the SEP is typically based on your W-2 wages rather than the entity’s profit. The IRS SEP overview ties contributions to each employee’s pay, so for an S-corp owner-employee the plan’s definition of compensation matters. Your CPA should model this before you decide between salary and distributions.

This is also where an entity choice starts to affect retirement planning. My guide to business formation for high-ticket dropshipping explains the structures, and the right one for you depends on your profit, state and tax situation.

Roth SEP, Loans and Withdrawals

The IRS says an employer may choose to accept Roth contributions to a SEP but is not required to, so ask your provider whether a Roth SEP is available. Schwab’s SEP IRA page describes only traditional tax treatment, with tax-deductible contributions and tax-deferred growth, so do not assume your provider offers a Roth option.

Loans are not permitted from a SEP-IRA, and the assets cannot be used as collateral. Withdrawals are taxable in the year received, withdrawals before age 59½ generally incur a 10% additional tax and required minimum distribution rules apply. The IRS also says funds may be rolled over tax-free to other IRAs and qualified plans, which gives you an exit if you switch to a solo 401(k) later.

See SEP-IRA and brokerage offers you may qualify for

Excess Contributions and How to Avoid Them

An excess contribution happens when a contribution is larger than the legal limit for that person. The IRS SEP fix-it guide on contributions that exceeded the limits says contributions are limited to the lesser of the annual dollar limit or 25% of compensation, and that the correction generally involves distributing the excess with earnings. It also says the employer is not entitled to a deduction for the excess.

The easiest way to avoid it is to wait until your return is nearly finished. Do not guess your contribution in December from a rough profit figure, and do not forget that your own limit is based on the self-employed formula.

If a bookkeeper updates your profit after the deposit, you may have overshot. Clean books make the final number more reliable. QuickBooks covers general accounting. Finaloop is built for ecommerce stores.

How the SEP Limit Compares With Other Accounts

For context, the IRS 2026 announcement lists a traditional or Roth IRA limit of $7,500, with a $1,100 catch-up at age 50 or older, and a SIMPLE IRA limit of $17,000 with a $4,000 catch-up. A one-participant 401(k) lets you defer up to $24,500 on top of the employer portion, and the IRS 401(k) limits page lists a $72,000 annual additions figure, or $80,000 with catch-up, or up to $83,250 for ages 60 to 63.

The takeaway is that the SEP shares the same $72,000 ceiling as the solo 401(k) but has no employee deferral, so at modest profits it allows less. I walk through that in my solo 401(k) vs SEP IRA comparison. If you want the full lineup of account types, see the best retirement accounts guide.

Choosing a Provider

You can open a SEP-IRA at a brokerage that offers it, but not every brokerage does. As one example, Schwab’s SEP IRA page lists a $0 minimum opening deposit and no fee to open or maintain the account, and it notes that other account fees, fund expenses and commissions may apply. Robinhood’s IRA overview describes traditional and Roth IRAs and does not mention SEP-IRAs. My best online brokerage comparison covers more providers.

Mistakes to Avoid and Your Game Plan

Mistakes to Avoid

The first mistake is assuming 25% of profit. Remember the 20% effective figure for owners. The second is ignoring employees, since a SEP requires equal-percentage contributions for eligible staff.

The third is missing the deadline for the year you want the deduction. The fourth is mixing up the tax year on the deposit.

The fifth is treating the contribution as investing. Money in a SEP-IRA still has to be invested, and investments can lose value. Learn the basics in how to invest in stocks. The best investing apps for beginners guide helps too, and diversified funds are usually a better start than a single bet.

The sixth is skipping the CPA. A SEP is simple, but the self-employed formula and the interaction with other plans are not.

Your SEP-IRA Game Plan

Here is the sequence I would follow. In the fall, estimate your profit and decide whether a SEP is right for you. After year end, close your books and have your CPA compute the self-employed maximum.

Then open the SEP before your filing deadline, make the contribution before the deadline including extensions, and note which tax year it is for. Next year, repeat the exercise with updated numbers.

If you are still building the income side, start with my guide to high-ticket niches. Then read the one on finding suppliers.

You can also read the free high-ticket dropshipping guide for the big picture.

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Frequently Asked Questions

What is the SEP IRA contribution limit for 2026?
The IRS lists up to 25% of compensation, capped at $72,000 per person for 2026. The compensation counted toward the 25% is capped at $360,000. For a self-employed owner, the effective limit is calculated differently and works out to about 20% of net earnings from self-employment after the half-SE-tax deduction.

Can I contribute to a SEP-IRA after the year ends?
Yes. The IRS says you can set up a SEP for a year as late as the due date of your return for that year, including extensions, and contributions are due by that same date. Confirm the exact date with your CPA.

Can I make catch-up contributions to a SEP-IRA?
No. The IRS says elective salary deferrals and catch-up contributions are not permitted in SEP plans, because only the employer contributes.

Do I have to contribute to a SEP every year?
No. The IRS says contributions are not required every year. When you do contribute, you must include every eligible employee at the same percentage.

What happens if I contribute too much?
The IRS fix-it guide says the usual correction is to distribute the excess with earnings, and the employer is not entitled to a deduction for the excess. Talk to a CPA quickly if you think you overshot.

More Guides in This Series

A SEP is one piece of my investing series, so here are the guides that cover the solo 401(k) side and what to buy inside your account.

Solo 401(k) Contribution Limits: how much you can put in as an owner with no employees.
Best Solo 401(k) Providers: how to compare fees, Roth options and loan features across providers.
Best ETFs for Beginners: how to choose and compare your first funds.
Best S&P 500 Index Funds: costs, minimums and how to choose one.
Best Dividend ETFs: how to compare yield, cost and holdings.
How to Start Day Trading: the rules, taxes and risks business owners should know first.

If you found this useful, these guides go deeper on related topics:

Trevor Fenner

Trevor Fenner is an ecommerce entrepreneur and the founder of Ecommerce Paradise, a platform focused on helping entrepreneurs build and scale profitable high-ticket ecommerce and dropshipping businesses. With over a decade of hands-on experience, Trevor specializes in high-ticket dropshipping strategy, niche and product selection, supplier recruiting and onboarding, Google & Bing Shopping ads, ecommerce SEO, and systems-driven automation and scaling. Through Ecommerce Paradise, he provides free education via in-depth guides like How to Start High-Ticket Dropshipping, advanced training through the High-Ticket Dropshipping Masterclass, and fully done-for-you turnkey ecommerce services for entrepreneurs who want a faster, more hands-off path to growth. Trevor is known for emphasizing sustainable, real-world ecommerce models over hype-driven tactics, helping store owners build scalable, sellable, and location-independent brands.