2025 SEP IRA Contribution Limit
For 2025, the SEP IRA Contribution Limit figures are $70,000 (Defined contribution limit), $750 (Compensation threshold), 25% (Share of employee compensation) and 20% (Share of net earnings, self-employed).
Effective 2025-01-01Source: Notice 2024-80 (IRS)Verified 2026-09-03
Share of employee compensation, Share of net earnings, self-employedSource: Publication 560 (2025), Retirement Plans for Small Business (IRS)Verified 2026-09-03
Compared with 2024
| Item | 2024 | 2025 | Change |
|---|---|---|---|
| Defined contribution limit | $69,000 | $70,000 | +$1,000 (+1.4%) |
| Compensation threshold | $750 | $750 | +$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
Two different amounts in the same notice, with two different reaches. The $70,000 is the limitation for defined contribution plans under section 415, which the notice states for defined contribution plans generally rather than for simplified employee pensions alone, so the same ceiling is the one other defined contribution arrangements are measured against. The $750 is the compensation threshold under section 408(k) regarding simplified employee pensions, and it is the only figure in the notice that names simplified employee pensions on its own. Notice 2024-80 also adjusts an annual compensation limitation that section 408(k) applies to these plans, but that is a third amount, stated separately and not equal to either of these. Each is published as its own figure under its own provision.
What changed this year, and why
For 2025 the limitation for defined contribution plans under section 415 is $70,000, increased from the amount that applied for the prior year. The compensation threshold under section 408(k) regarding simplified employee pensions remains $750, and Notice 2024-80 uses the word remains for it. So of the two amounts in the notice that bear on a simplified employee pension, one moved for 2025 and one held still. The notice publishes the adjusted figures themselves; the rules they feed sit in the Code provisions it cites.
Common questions
- What is the maximum SEP IRA contribution for 2025?
- For 2025 the limitation for defined contribution plans under section 415 is $70,000. Notice 2024-80 states it as one figure covering defined contribution plans, so it is not a SEP-only number: other defined contribution arrangements are measured against the same limitation. The notice records the figure as an increase over the amount that applied for the prior year, and it does not vary the amount by employer size or by type of employer.
- What is the $750 SEP IRA compensation threshold for 2025?
- Notice 2024-80 states that the compensation threshold under section 408(k) regarding simplified employee pensions remains $750 for 2025. That is the whole of what the notice says about it: it publishes the adjusted amount and names the Code provision the amount belongs to, without restating the rule that provision applies it to. The figure did not move for 2025.
- Did the SEP IRA contribution limit change for 2025?
- One of the two amounts moved. The limitation for defined contribution plans under section 415 rose to $70,000 for 2025 from the amount that applied for the prior year. The compensation threshold under section 408(k) remains $750. Figures in the notice move only once the cost-of-living adjustment is large enough to clear the applicable rounding rules, which is why one changed and the other did not.
- Is the $70,000 limit specific to SEP IRAs?
- No. Notice 2024-80 states $70,000 as the limitation for defined contribution plans under section 415, a provision covering defined contribution plans in general rather than simplified employee pensions alone. The notice's SEP-specific figure is the separate compensation threshold under section 408(k), which is $750 for 2025. Reading the $70,000 as a SEP-only ceiling mistakes which provision it comes from.
- Is there a catch-up contribution for a SEP IRA?
- Notice 2024-80 lists catch-up limitations under section 414 for catch-up contributions to an applicable employer plan, including plans described in section 401(k) and in section 408(p). It states no catch-up amount for simplified employee pensions. The only figure in the notice that names simplified employee pensions is the compensation threshold under section 408(k), at $750 for 2025.
- Is compensation capped when a SEP IRA contribution is worked out?
- Notice 2024-80 adjusts an annual compensation limitation that section 408(k) applies to simplified employee pensions, and it states that limitation as its own amount for 2025, separate from the $70,000 defined contribution limitation and from the $750 compensation threshold. The notice publishes the three as distinct figures under distinct provisions rather than folding them into one SEP calculation.
- Does the SEP IRA limit interact with a workplace salary deferral limit?
- Notice 2024-80 states the limitation on the exclusion for elective deferrals under section 402 as its own amount for 2025, listed apart from the $70,000 limitation for defined contribution plans under section 415. The notice presents them as separate limitations, under separate provisions, adjusted separately. It states no combined figure covering both.
- Where does the 2025 SEP IRA limit come from?
- Notice 2024-80, titled 2025 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living. Section 415 requires the Secretary of the Treasury to adjust these limitations annually for cost-of-living increases, and the notice publishes the result once the rounding rules have been applied. The $70,000 defined contribution limitation and the $750 compensation threshold both appear there.
Every amount on this page is a published figure rather than yours. The SEP IRA contribution limit for employees takes the number you enter and works it out against them, showing which published figure it used.
The 25% of compensation ceiling
For 2025, an employer's contribution to each common-law employee's SEP IRA cannot be more than the smaller of two amounts: 25% of that employee's compensation, or the defined contribution limit of $70,000. Compensation used to figure the 25% share generally does not include the employer's SEP contributions themselves. The plan document states how the contribution is calculated and allocated among participants. In addition, when applying the 25% share, the employer may only count the first $750 of an employee's compensation, so earnings above that threshold are still counted but the overall result is also capped at $70,000. A contribution that satisfies both halves of the lesser-of test - the percentage test and the dollar cap - is the maximum the employer may put in for that employee for the year.
Contributions you make for 2025 to a common-law em- ployee's SEP IRA can't exceed the lesser of 25% of the employee's compensation or $70,000.
Publication 560 (2025), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
How much of the contribution you can deduct
When an employer makes contributions to a SEP IRA for 2025, the tax deduction is limited to the smaller of two amounts: the actual contributions made, or 25% of the compensation paid to each participant, capped at $70,000 per person. Compensation for this calculation is limited to $350,000 per participant, and the deduction cannot exceed $70,000 regardless of how much compensation was paid. If contributions exceed this limit, the excess can be carried over to future years and deducted then, subject to that year's deduction limits. The compensation used to figure the 25% limit comes from the business that maintains the plan, and the deduction is taken on the employer's tax return. In 2026, both the compensation limit and the deduction cap increase.
Deduction Limit for Contributions for Participants 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 $350,000 per participant) paid to the participants during 2025, from the business that has the plan, not to exceed $70,000 per participant.
Publication 560 (2025), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
For a self-employed person, compensation is net earnings
When a self-employed person contributes to their own SEP IRA, calculating the deduction requires a special computation because compensation is defined as net earnings from self-employment, which already takes into account two key deductions: the deductible portion of self-employment tax, and the deduction for the SEP contributions themselves. These two deductions are interdependent because the amount of the SEP contribution deduction affects net earnings, which in turn affects the compensation figure used to calculate the contribution limit. To resolve this circular calculation, the deduction is determined indirectly by reducing the contribution rate specified in the plan document. The self-employed person uses either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed, depending on the plan's contribution rate, to calculate the adjusted rate. Then the Deduction Worksheet for Self-Employed is used to figure the maximum deduction amount. This special computation ensures that the contribution and deduction are calculated correctly when compensation includes the contribution itself.
Deduction Limit for Self-Employed Individuals 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 con- tributions made to your own SEP IRA, compensation is your net earnings from self-employment (defined in chap- ter 1), which takes into account both the following deduc- tions. • The deduction for the deductible part of your self-em- ployment tax. • The deduction for contributions to your own SEP IRA.
Publication 560 (2025), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
A self-employed person uses a reduced contribution rate
Because the deduction for SEP contributions to a self-employed person's own account and their net earnings from self-employment are interdependent, the deduction cannot be calculated directly using the plan's stated contribution rate. Instead, the self-employed individual must determine the deduction indirectly by reducing the contribution rate called for in the plan. This adjusted rate accounts for the fact that the contribution itself reduces net earnings, which is the compensation base used to figure the contribution limit. To apply the reduced rate, the self-employed person uses either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed, whichever matches their plan's contribution rate. These tables and worksheets are provided in chapter 5 of the publication. After calculating the adjusted contribution using the reduced rate, the self-employed person then uses the Deduction Worksheet for Self-Employed to figure their maximum deduction. This indirect method ensures that both the contribution amount and the corresponding deduction are calculated correctly given the circular relationship between contributions and net earnings.
The deduction for contributions to your own SEP IRA and your net earnings depend on each other. For this rea- son, you determine the deduction for contributions to your own SEP IRA indirectly by reducing the contribution rate called for in your plan.
Publication 560 (2025), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
Who must be included, and who can be left out
For 2025, a Simplified Employee Pension (SEP) must cover every employee who meets all three of these requirements: has reached age 21, has worked for the employer in at least 3 of the last 5 years, and has received at least $750 in compensation from that employer during 2025. An employer is free to use participation rules that are less restrictive than these minimums - for example, covering employees who are younger or who have worked fewer years - but may not impose stricter ones. Certain workers may be excluded entirely from coverage, including employees whose retirement benefits were bargained for in good faith by a union, and nonresident alien employees who received no U.S.-source wages or other compensation from the employer. Once an employee satisfies the eligibility test, the employer must establish a SEP IRA for that individual and make contributions on the same allocation formula that applies to all other eligible employees, without discriminating in favor of highly compensated staff.
Eligible employee. An eligible employee is an individual who meets all the following requirements. • Has reached age 21. • Has worked for you in at least 3 of the last 5 years. • Has received at least $750 in compensation from you in 2025. The amount is $800 for 2026.
Publication 560 (2025), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
A SEP for last year can still be opened this spring
A Simplified Employee Pension does not have to be created by December 31 of the year it covers. Instead, an employer can establish a SEP for a given tax year as late as the due date of the federal income tax return for that year, including any extension of time to file. For a calendar-year sole proprietor or partnership, this means the SEP for 2025 can still be set up in April 2026, or as late as October 2026 if a filing extension was obtained; for a corporation that files on an extended deadline, the SEP can be opened even later. Once the plan is in place by that deadline, the employer may make contributions for the prior year and deduct them on the return for that year, provided the contribution limits and allocation rules are satisfied. This flexibility lets small-business owners who have not yet established a retirement plan decide after year-end how much they can afford to contribute and still receive a deduction for the earlier tax year.
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 (2025), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
The form that establishes the plan, and what it does for you
Every SEP must be established through a formal written agreement that provides benefits to all eligible employees. The IRS provides a model agreement, Form 5305-SEP, that an employer can adopt to satisfy this requirement without needing prior approval or a determination letter from the IRS. The original signed form is kept by the employer and is not filed with the IRS; adopting it also usually relieves the employer from filing annual retirement-plan information returns with the IRS and the Department of Labor. An employer may choose to use Form 5305-SEP only if it does not currently maintain another qualified retirement plan (other than another SEP), all eligible employees already have SEP IRAs, and the employer does not use leased employees who are not common-law employees. If any of those conditions do not hold, or if the employer wants terms that differ from the model, a custom written agreement prepared with professional advice is required instead.
You can satisfy the written agree- ment requirement by adopting an IRS model SEP using Form 5305-SEP. However, see When not to use Form 5305-SEP, later. If you adopt an IRS model SEP using Form 5305-SEP, no prior IRS approval or determination letter is required.
Publication 560 (2025), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
A contribution too big to deduct this year carries into next year
For federal tax purposes in 2025, if an employer contributes more to a Simplified Employee Pension than it can deduct for the current year, the excess amount is not lost. The employer can carry over the nondeductible portion and deduct it in later years, combined with contributions made for those later years. However, the combined deduction in any later year remains subject to the 25% of compensation limit for that year. Because a SEP is treated as a profit-sharing defined contribution plan for purposes of this limit, the carryover reduces the room available for new contributions in the later year. The source document notes that the amount carried over and deducted may itself be subject to an excise tax on nondeductible contributions until it is absorbed within the deduction ceiling of a future year.
If you contribute more to a plan than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan.
Publication 560 (2025), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
Contributing more than the deduction limit costs a 10% excise tax
Contributions to a Simplified Employee Pension that exceed the employer's allowable deduction for the year are treated as nondeductible (excess) contributions. When this occurs, the employer may be subject to a 10% excise tax on the excess amount. The tax applies each year the excess remains undeducted, and is designed to discourage employers from funding the plan beyond the amount the tax code permits them to deduct. The excess can be absorbed in future years by carrying it forward and deducting it when room becomes available within the annual deduction limit, but until that happens the excise tax continues to apply. Employers who also contribute to a defined benefit plan or another defined contribution plan must figure the carryover limit in coordination with those plans, as the overall deduction is shared across all of the employer's qualified arrangements.
If you made nondeductible (excess) contribu- tions to a SEP, you may be subject to a 10% excise tax.
Publication 560 (2025), 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 2024-80 (IRS)
- Defined contribution limit
The limitation for defined contribution plans under section 415(c)(1)(A) is increased in 2025 from $69,000 to $70,000.
- Compensation threshold
The compensation threshold under section 408(k)(2)(C) regarding simplified employee pensions remains $750.
Publication 560 (2025), Retirement Plans for Small Business (IRS)
Contributions you make for 2025 to a common-law em- ployee's SEP IRA can't exceed the lesser of 25% of the employee's compensation or $70,000.
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.