2019 SEP IRA Contribution Limit
For 2019, the SEP IRA Contribution Limit figures are $56,000 (Defined contribution limit), $600 (Compensation threshold), 25% (Share of employee compensation) and 20% (Share of net earnings, self-employed).
Effective 2019-01-01Source: Notice 2018-83 (IRS)Verified 2026-09-03
Share of employee compensation, Share of net earnings, self-employedSource: Publication 560 (2019), Retirement Plans for Small Business (IRS)Verified 2026-09-03
Compared with 2018
| Item | 2018 | 2019 | Change |
|---|---|---|---|
| Defined contribution limit | $55,000 | $56,000 | +$1,000 (+1.8%) |
| 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 who maintain Simplified Employee Pension (SEP) IRA plans under IRC Section 408(k).
What changed this year, and why
The defined contribution limit under Section 415(c)(1)(A) increased from $55,000 in 2018 to $56,000 for 2019, effective January 1, 2019. The compensation threshold for simplified employee pensions under Section 408(k)(2)(C) remained unchanged at $600.
Common questions
- What is the maximum contribution to a SEP IRA for 2019?
- For 2019, the defined contribution limit under Section 415(c)(1)(A) is $56,000, effective January 1, 2019. This amount increased from $55,000 in 2018. A SEP IRA contribution may not exceed this limit.
- What is the minimum compensation threshold for a SEP IRA in 2019?
- An employer must have paid at least $600 in compensation to the employee in 2019 for a SEP contribution to be required for that employee. This threshold remained unchanged from 2018.
The 25% of compensation ceiling
For 2019, total contributions to a SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $56,000. This ceiling applies whether the contributions are elective deferrals, nonelective contributions, or a combination of both. The $56,000 limit represents the maximum defined contribution amount allowed for the year. If an employer makes both types of contributions to the same SEP-IRA, their combined total must stay within this boundary. The same overall limit applies to contributions a self-employed individual makes to their own SEP-IRA. This rule ensures that retirement savings through a SEP-IRA remain proportionate to actual compensation received from the business that maintains the plan.
Overall limit on SEP contributions. If you also make nonelective contributions to a SEP-IRA, the total of the nonelective and elec- tive contributions to that SEP-IRA can't exceed the lesser of 25% of the employee's compensa- tion or $56,000 for 2019 ($57,000 for 2020).
Publication 560 (2019), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
How much of the contribution you can deduct
The most you can deduct for your contributions to your or your employee's SEP-IRA is the lesser of the following amounts: your contributions (including any excess contributions carryover), or 25% of the compensation (limited to $280,000 per participant) paid to the participants during 2019 from the business that has the plan, not to exceed $56,000 per participant. This means the deduction is capped at the smaller of what you actually contributed or 25% of compensation up to the annual limit. For 2019, the maximum deduction per participant is $56,000, which represents the defined contribution limit. The compensation used in the 25% calculation cannot exceed $280,000 per participant for the year. This deduction limit applies to employer contributions made to SEP-IRAs and determines how much of those contributions can be claimed as a business deduction on the employer's tax return.
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 $280,000 per participant) paid to the par- ticipants during 2019 from the business that has the plan, not to exceed $56,000 per participant.
Publication 560 (2019), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
For a self-employed person, compensation is net earnings
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 (defined in chapter 1), which takes into account both the following deductions: the deduction for the deductible part of your self-employment tax, and the deduction for contributions to your own SEP-IRA. This means that for self-employed individuals, the compensation figure used to calculate SEP contributions is not simply gross business income but rather net earnings from self-employment after accounting for these specific deductions. The net earnings figure determines how much can be contributed and deducted, making the calculation more complex than for employees whose compensation is straightforward wages.
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.
Publication 560 (2019), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
A self-employed person uses a reduced contribution rate
The deduction for contributions to your own SEP-IRA and your net earnings depend on each other. This means that if your plan specifies a certain contribution percentage, you cannot simply apply that percentage directly to your net earnings to calculate the contribution amount. Instead, you must use specialized tables or worksheets provided in chapter 5 of the publication to determine the actual reduced contribution rate that applies to self-employed individuals. The reduction accounts for the fact that the contribution itself affects the net earnings figure used in the calculation, creating a circular dependency that requires this indirect computation method rather than a straightforward percentage application.
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.
Publication 560 (2019), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
Who must be included, and who can be left out
For 2019, a SEP-IRA must be set up for each employee who meets all three requirements: 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 that employer during the year. Employers may use less restrictive eligibility rules if they choose, but they cannot impose more restrictive ones. Certain employees can be excluded entirely, including those covered by a union agreement whose retirement benefits were bargained for, and nonresident alien employees who received no U.S.-source earned income. Once an employee qualifies under these thresholds, the employer must make contributions on their behalf using the same percentage of compensation applied to all eligible employees, up to the annual defined contribution limit of $56,000 or 25% of compensation, whichever is less.
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 2019. This amount re- mains unchanged in 2020. You can use less restrictive participa- tion requirements than those listed, but not more restrictive ones. Excludable employees. The following em- ployees can be excluded from coverage under a SEP. • Employees covered by a union agreement and whose retirement benefits were bar- gained
Publication 560 (2019), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
A SEP for last year can still be opened this spring
Employers have flexibility in establishing a Simplified Employee Pension plan for a given tax year. The deadline for setting up a SEP is not December 31; rather, 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. This means a sole proprietor with a six-month extension has until October 15, 2020 to establish a SEP for the 2019 tax year and still make deductible contributions for that year. The plan must be formally documented and a SEP-IRA must be set up by or for each eligible employee before contributions can be made, but the clock runs later than the calendar year end for most business structures.
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 (2019), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
A contribution too big to deduct this year carries into next year
If an employer contributes more to a SEP than the deduction limit allows for a given tax year, the excess amount is treated as a nondeductible contribution. Rather than losing that contribution entirely, the employer can carry over and deduct the difference in later years. However, the carryover amount, when added to whatever contribution is made for the later year, cannot exceed that year's deduction limit. For a SEP, the deduction limit is generally 25% of the total compensation paid to all eligible employees, subject to the overall defined contribution limit of $56,000 per employee. If the employer also maintains a defined benefit plan or another defined contribution plan, additional carryover limits apply, and the excess contribution carried forward may itself be subject to an excise tax until it is absorbed by a later year's deduction capacity.
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 (2019), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
Contributing more than the deduction limit costs a 10% excise tax
When an employer makes contributions to a SEP that exceed the allowable deduction limit for the year, those excess contributions are classified as nondeductible. The IRS imposes a penalty on such amounts: if you made nondeductible (excess) contributions to a SEP, you may be subject to a 10% excise tax. This tax applies each year the excess remains in the plan undistributed or unabsorbed by a later year's deduction limit. The excise tax is calculated on the nondeductible contribution amount, which for a SEP is generally any contribution above 25% of an employee's compensation or above the annual defined contribution limit of $56,000. The tax continues to apply in subsequent years until the excess is either corrected by distribution or carried over and deducted in a year when the employer has sufficient deduction room.
Excise tax. If you made nondeductible (ex- cess) contributions to a SEP, you may be sub- ject to a 10% excise tax.
Publication 560 (2019), 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 2018-83 (IRS)
- Defined contribution limit
The limitation for defined contribution plans under § 415(c)(1)(A) is increased in 2019 from $55,000 to $56,000.
- Compensation threshold
The compensation amount under § 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.
Publication 560 (2019), Retirement Plans for Small Business (IRS)
Contributions you make for 2019 to a com- mon-law employee's SEP-IRA can't exceed the lesser of 25% of the employee's compensation or $56,000.
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.