2017 SEP IRA Contribution Limit
For 2017, the SEP IRA Contribution Limit figures are $54,000 (Defined contribution limit), $600 (Compensation threshold), 25% (Share of employee compensation) and 20% (Share of net earnings, self-employed).
Effective 2017-01-01Source: Notice 2016-62 (IRS)Verified 2026-09-03
Share of employee compensation, Share of net earnings, self-employedSource: Publication 560 (2017), Retirement Plans for Small Business (IRS)Verified 2026-09-03
Compared with 2016
| Item | 2016 | 2017 | Change |
|---|---|---|---|
| Defined contribution limit | $53,000 | $54,000 | +$1,000 (+1.9%) |
| Compensation threshold | $600 | $600 | +$0 (+0.0%) |
| Share of employee compensation | 25% | 25% | +0% (+0.0%) |
| Share of net earnings, self-employed | 20% | 20% | +0% (+0.0%) |
Who it applies to
Employers and self-employed individuals maintaining a Simplified Employee Pension (SEP) IRA under IRC § 408(k)
What changed this year, and why
The defined contribution plan limit under IRC § 415(c)(1)(A) increased to $54,000 for 2017, effective January 1, 2017. The SEP compensation threshold under § 408(k)(2)(C) remained unchanged at $600.
Common questions
- What is the maximum contribution to a SEP IRA for 2017?
- For 2017, the overall defined contribution plan limit under IRC § 415(c) that caps total SEP IRA contributions is $54,000.
- What is the minimum compensation threshold for SEP eligibility in 2017?
- An employer must include in the SEP any employee who has earned at least $600 in compensation during the year.
The 25% of compensation ceiling
For 2017, the IRS treats a SEP contribution as an excess contribution if it is more than the lesser of 25% of the employee's compensation or $54,000. For a self-employed person, the comparable ceiling is 20% of net earnings from self-employment rather than 25%, because of the way net earnings are defined. If a contribution is above that ceiling, the excess is included in the employee's income for the year and is treated as a contribution the employee made to his or her SEP-IRA. The same $54,000 defined contribution limit applies whether the contribution is made for an employee or for the business owner's own SEP-IRA. The $54,000 figure is the overall defined contribution limit; the 25% (or 20%) of compensation figure is the percentage-of-compensation ceiling, and the lower of the two controls.
Ex- cess contributions are your contributions to an employee's SEP-IRA (or to your own SEP-IRA) for 2017 that exceed the lesser of the following amounts. 25% of the employee's compensation (or, for you, 20% of your net earnings from self-employment). $54,000.
Publication 560 (2017), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
How much of the contribution you can deduct
An employer's annual income tax deduction for SEP contributions to any one participant - whether an employee or the employer's own SEP-IRA - is limited to the lesser of two amounts. First, the total contributions actually made to that participant's SEP-IRA for the year, including any excess contributions carried over from prior years. Second, 25% of the compensation paid to that participant during 2017 from the business sponsoring the plan, but this deduction cannot exceed $54,000 per participant. The compensation taken into account for this 25% calculation is itself limited per participant. Because a deduction cannot exceed the contribution actually made, the practical deduction limit is always the contribution amount if it is below the 25%-of-compensation cap, and the $54,000 maximum otherwise. These rules apply each year and are restated by the IRS with updated compensation and dollar limits for subsequent years.
The most you can deduct for your contributions to your or your employee's SEP-IRA is the lesser of the following amounts. 1. Your contributions (including any excess contributions carryover). 2. 25% of the compensation (limited to $270,000 per participant) paid to the par- ticipants during 2017 from the business that has the plan, not to exceed $54,000 per participant.
Publication 560 (2017), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
For a self-employed person, compensation is net earnings
When a self-employed individual contributes to their own SEP-IRA, the definition of compensation used for the contribution and deduction limits differs from the definition used for employees. For a self-employed person, compensation is net earnings from self-employment, and that figure must be calculated after accounting for two deductions: the deductible portion of self-employment tax and the deduction for the SEP contribution itself. Because the contribution and the net earnings figure are interdependent - the contribution reduces the earnings on which it is based - the IRS requires a special computation rather than a straightforward percentage calculation. The self-employed person must use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed, found in chapter 5 of the publication, to determine the effective contribution rate. Then, the Deduction Worksheet for Self-Employed in chapter 5 is used to arrive at the maximum deductible contribution amount.
If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for these contributions. When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment (de- fined in chapter 1), which takes into account both the following deductions. The deduction for the deductible part of your self-employment tax. The deduction for contributions to your own SEP-IRA.
Publication 560 (2017), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
A self-employed person uses a reduced contribution rate
Because a self-employed person's net earnings from self-employment and the SEP contribution made on their own behalf are interdependent - the contribution reduces the earnings on which it is calculated - the stated plan contribution rate cannot be applied directly to net earnings. Instead, the self-employed individual must reduce the contribution rate to arrive at the effective rate that, when applied to the reduced earnings base, produces the correct contribution. The IRS provides a Rate Table for Self-Employed and a Rate Worksheet for Self-Employed in chapter 5 of the publication to convert the plan's stated rate into the reduced rate. After computing the contribution using this reduced rate, the self-employed person uses the Deduction Worksheet for Self-Employed, also in chapter 5, to determine the maximum deductible amount. This indirect approach ensures the contribution stays within the defined contribution limit of $54,000 and the applicable percentage of net earnings.
The deduction for contributions to your own SEP-IRA and your net earnings depend on each other. For this reason, you determine the deduction for contributions to your own SEP-IRA indirectly by reducing the contribution rate called for in your plan. To do this, use the Rate Table for Self-Employed or the Rate Work- sheet for Self-Employed, whichever is appropri- ate for your plan's contribution rate, in chap- ter 5. Then figure your maximum deduction by using the Deduction Worksheet for Self-Em- ployed in chapter 5.
Publication 560 (2017), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
Who must be included, and who can be left out
A simplified employee pension (SEP) plan does not have to cover every worker the employer has on payroll. An employee is eligible for the SEP only if the worker meets all three tests: the employee has reached age 21, has worked for the employer in at least 3 of the last 5 years, and has received at least $600 in compensation from the employer in 2017. Employers may apply less restrictive participation requirements than these, but they may not make the tests stricter. Employees covered by a union agreement whose benefits were bargained for in good faith, and nonresident aliens with no U.S. source wages from the employer, can be excluded from coverage under the plan.
SEP-IRAs are set up for, at a minimum, each el- igible employee (defined below). A SEP-IRA may have to be set up for a leased employee (defined in chapter 1), but doesn't need to be set up for excludable employees (defined later). Eligible employee. An eligible employee is an individual who meets all the following require- ments. Has reached age 21. Has worked for you in at least 3 of the last 5 years. Has received at least $600 in compensa- tion from you in 2017. This amount re- mains unchanged in 2018. You can use less restrictive participa- tion requirements than those listed, but not more restrictive ones.
Publication 560 (2017), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
A SEP for last year can still be opened this spring
Under federal rules for simplified employee pension (SEP) plans in 2017, the total contribution for each employee cannot exceed the lesser of 25% of the employee's compensation or the defined contribution limit of $54,000. The employer can choose to set up the plan and make contributions for the prior tax year as late as the due date (including extensions) of the employer's income tax return for that year. For example, a calendar-year employer with an extended return can fund the 2017 SEP as late as October 15, 2018. Once the SEP is established and contributions are made, the employer's annual deduction for contributions is also limited to 25% of participating employees' compensation. Contributions that exceed this deduction limit cannot be deducted in the current year but may be carried forward to later years, subject to the deduction limit in those later years.
Deadline for setting up a SEP. You can set up a SEP for any year as late as the due date (including extensions) of your income tax return for that year.
Publication 560 (2017), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
The form that establishes the plan, and what it does for you
Federal rules give employers a shortcut for establishing a SEP plan without having to draft a custom plan document. By adopting an IRS model SEP using Form 5305-SEP, the employer satisfies the formal written agreement requirement. No prior IRS approval or determination letter is needed, and the employer keeps the original form without filing it with the IRS. Using this model form also typically relieves the employer from filing annual retirement plan information returns with the IRS and the Department of Labor. However, Form 5305-SEP cannot be used if the employer already maintains another qualified retirement plan, has eligible employees for whom IRAs have not been set up, uses leased employees, or falls into certain other categories.
You can satisfy the written agreement requirement by adopting an IRS model SEP using Form 5305-SEP. However, see When not to use Form 5305-SEP below. If you adopt an IRS model SEP using Form 5305-SEP, no prior IRS approval or determina- tion letter is required.
Publication 560 (2017), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
A contribution too big to deduct this year carries into next year
Under federal rules for SEP plans in 2017, if an employer contributes more than the deduction limit allows, the excess is treated as a nondeductible contribution. The employer can carry over and deduct the difference in later years, but the carryover combined with the contribution for that later year remains subject to the deduction limit for that year. For 2017, the deduction limit is 25% of each employee's compensation, and the overall defined contribution limit is $54,000. If the employer also contributes to another defined benefit or defined contribution plan, additional carryover limits apply.
If you made SEP contributions that are more than the deduction limit (nondeductible contri- butions), you can carry over and deduct the dif- ference in later years. However, the carryover, when combined with the contribution for the later year, is subject to the deduction limit for that year.
Publication 560 (2017), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
Contributing more than the deduction limit costs a 10% excise tax
Under federal rules for SEP plans in 2017, if an employer makes contributions that exceed the deduction limit, those excess contributions may trigger a 10% excise tax. The tax applies to nondeductible contributions made to the SEP. The employer must report this tax on the appropriate tax form. For 2017, the deduction limit is 25% of each employee's compensation, and the overall defined contribution limit is $54,000. Contributions above these limits that cannot be deducted in the current year are subject to this excise tax unless they are carried over and deducted in a later year within that year's limits.
Excise tax. If you made nondeductible (ex- cess) contributions to a SEP, you may be sub- ject to a 10% excise tax.
Publication 560 (2017), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
Notice 2016-62 (IRS)
- Defined contribution limit
The limitation for defined contribution plans under § 415(c)(1)(A) is increased in 2017 from $53,000 to $54,000.
- Compensation threshold
The compensation amount under § 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.
Publication 560 (2017), Retirement Plans for Small Business (IRS)
Contributions you make for 2017 to a com- mon-law employee's SEP-IRA can't exceed the lesser of 25% of the employee's compensation or $54,000.
The deduction for annual employer contributions (other than elective deferrals) to a SEP plan, a profit-sharing plan, or a money purchase pension plan can't be more than 20% of your net earnings (figured without deducting contributions for yourself) from the business that has the plan.