2017 SEP IRA Contribution Limit
For 2017, the SEP IRA Contribution Limit is $54,000 (Defined contribution limit), $600 (Compensation threshold) and 25% (Share of employee compensation).
Effective 2017-01-01Source: Notice 2016-62 (IRS)Verified 2026-08-29
Share of employee compensationSource: Publication 560 (2017), Retirement Plans for Small Business (IRS)Verified 2026-08-29
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%) |
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)
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.