SEP IRA Contributions
Contribute up to 25% of net self-employment income to a SEP IRA (max $70,000 for 2025).
Tax Form
Form 1040, Line 16
Estimated Savings
$2,000-70,000/year
IRS Reference
Publication 560
Income Level
How It Works
A SEP IRA (Simplified Employee Pension) allows self-employed individuals to contribute up to 25% of net self-employment earnings, with a maximum of $70,000 for 2025 ($69,000 for 2024). Contributions are tax-deductible and grow tax-deferred until retirement. SEP IRAs are easy to set up and have no annual filing requirements.
IRS Rules & Requirements
- Maximum contribution is 25% of net self-employment income
- 2025 dollar limit is $70,000 ($69,000 for 2024)
- Net self-employment income = profit minus 1/2 of self-employment tax
- Effective maximum is approximately 20% of gross self-employment profit
- Can set up and fund by tax filing deadline (including extensions)
Real Examples
Net SE income of $100,000: can contribute up to ~$18,587
Net SE income of $200,000: can contribute up to ~$37,174
Net SE income of $350,000+: can contribute the max $70,000 (2025)
Common Mistakes to Avoid
- Thinking you can contribute 25% of gross income (it's net)
- Missing the contribution deadline (tax filing deadline)
- Not accounting for self-employment tax in the calculation
- Contributing more than the annual limit
Pro Tip
A SEP IRA is simpler than a Solo 401(k) but doesn't allow employee deferrals. If you want to maximize retirement savings, compare both options based on your income level.
Related Deductions
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