Self-Employed Retirement Contribution Calculator

Why the effective rate is 20%, not 25%

IRS Publication 560 says the SEP-IRA and Solo 401(k) employer contribution rate is 25% — but 25% of what? For a W-2 employee, the employer contributes 25% of the employee's gross compensation. For a sole proprietor, the contribution is deductible, so the IRS defines compensation as net profit minus the contribution itself. That circularity collapses to a single equation:

The effective rate is exactly 20% — not an approximation. The calculator applies this as planRate / (1 + planRate), which equals 0.2000000000 when planRate = 0.25. If you modify the nominal rate in the limits panel, the effective rate updates algebraically.

The IRS worksheet, line by line

IRS Publication 560 prescribes two worksheets: the Rate Worksheet for Self-Employed (which converts the plan's stated rate to the effective rate) and the Deduction Worksheet for Self-Employed (which computes the actual contribution and deduction). This calculator follows both, rounding each intermediate result to the nearest cent before the next step — matching how the worksheets are designed to be completed by hand.

The 0.9235 factor in Step 1 equals 1 minus the "employer half" of SE tax (7.65% = 15.3% ÷ 2). It converts gross self-employment income into the base on which SE tax is computed — equivalent to the Schedule SE Part I, Line 3 calculation.

The SS wage-base ceiling and split-rate SE tax

The 15.3% SE tax rate is a flat rate only below the Social Security wage base ($184,500 for 2026). Above it, OASDI (the 12.4% Social Security portion) no longer applies; only Medicare (2.9%) continues. For a sole proprietor with net SE earnings above the wage base, the SE tax is:

Because the Medicare portion still applies to the full net SE earnings, the SE tax above the wage base grows — but more slowly than below it. The half-SE-tax deduction (Step 3) therefore also grows more slowly, leaving a larger net earnings base (Step 4) and a higher employer contribution for high-income earners compared with the flat-rate estimate. The calculator applies the split-rate formula automatically and flags the ceiling when it activates.

§415(c) and §401(a)(17): the two ceilings that bite

Two independent dollar limits can cap the employer contribution before the 20% formula does:

• §401(a)(17) compensation cap ($360,000 for 2026). The employer contribution is computed on compensation up to this limit. A sole proprietor with net earnings of $383,000 uses $360,000 as the base, not $383,000. The cap is applied before multiplying by the 20% effective rate.
• §415(c) overall limit ($72,000 for 2026). The employer contribution cannot exceed this amount, regardless of how it is calculated. For a sole proprietor with net earnings above approximately $360,000, the 20% formula would produce $72,000 exactly, and the §415(c) cap confirms rather than reduces the result. Below that income, the §415(c) cap is not the binding constraint.

At $400,000 of net profit: net earnings after the ½ SE deduction ≈ $383,205. The §401(a)(17) cap applies first, giving a base of $360,000. 20% of $360,000 = $72,000 — exactly at the §415(c) limit. No elective deferral room remains inside the §415(c) bucket for a Solo 401(k). The total Solo 401(k) contribution at that income is $72,000 (or $83,250 with the SECURE 2.0 super catch-up for ages 60–63).

SEP-IRA vs. Solo 401(k): when the gap is largest

The employer profit-sharing formula is identical for both plans — 20% of net earnings, capped at $72,000. The difference is the Solo 401(k)'s additional employee elective deferral slot: up to $24,500 in 2026 (plus catch-up contributions if you qualify), subject to the §415(c) overall limit.

The gap between SEP-IRA and Solo 401(k) is largest when the employer contribution is well below the §415(c) ceiling, leaving room for the full elective deferral. At $100,000 of net profit, the employer contribution is approximately $18,587 — leaving $53,413 of §415(c) room, easily covering the $24,500 deferral. The Solo 401(k) total is $43,087 versus the SEP-IRA's $18,587 — a difference of $24,500, exactly the elective deferral limit.

The gap narrows as income rises and the employer contribution approaches $72,000. Once the employer contribution reaches $72,000 (approximately $400,000 of net profit), no deferral room remains inside the §415(c) bucket, and the two plans produce the same employer contribution. The only advantage remaining for the Solo 401(k) at high incomes is the catch-up contribution, which sits above the §415(c) ceiling.

The SEP-IRA has simpler administration: no Form 5500 filing for balances under $250,000, no annual plan document updates, and contributions can be made up to the tax filing deadline including extensions. The Solo 401(k) has higher paperwork but meaningfully more contribution room at moderate incomes.

SECURE 2.0 super catch-up: ages 60–63

SECURE 2.0 Act §109 (effective for tax years beginning after December 31, 2024) established a higher catch-up contribution limit for participants aged 60, 61, 62, or 63 as of December 31 of the tax year. For 2026, this "super catch-up" is $11,250, compared with the standard $8,000 catch-up for ages 50–59 and 64 and older.

The catch-up contribution is available only for Solo 401(k) plans, not SEP-IRAs. It sits above the §415(c) overall limit — it does not consume any of the employer or elective deferral room. A sole proprietor aged 61 in 2026 with moderate income can contribute up to $72,000 (employer + deferral) plus $11,250 super catch-up, for a maximum of $83,250. At age 64, the applicable amount drops back to the standard $8,000 catch-up, for a maximum of $80,000.

The temporary window for the super catch-up (ages 60–63 only) reflects Congress's intent to let workers approaching traditional retirement age make larger contributions during a concentrated window, not as a permanent benefit.

S-corp owners: a different calculation

This calculator applies to Schedule C sole proprietors and single-member LLCs taxed as disregarded entities. It does not apply to S-corp owner-employees, even those who also have Schedule C income.

An S-corp owner-employee's retirement contribution is based on W-2 wages paid by the corporation, not on the corporation's net income or distributions. The contribution formula uses the W-2 amount directly — no SE tax adjustment, no net-earnings deduction. The employer (the corporation) can contribute up to 25% of the W-2 wage to a SEP-IRA, or the same formula to a defined-benefit or defined-contribution plan. The owner-employee can also make elective deferrals up to $24,500 (or more with catch-up). Because the S-corp calculates and deducts these contributions at the corporate level, the tax treatment differs significantly from a sole proprietor's deduction on Schedule 1.

If you operate as an S-corp, use this tool only as a conceptual reference. Your actual maximum contribution depends on your W-2 compensation, not your Schedule C profit.

What this calculator does not model

• State income tax. Contributions are deductible for federal tax purposes. State conformity varies. Some states do not recognize the SEP-IRA deduction or treat it differently.
• Self-employed health insurance deduction. Also deducted on Schedule 1, which affects adjusted gross income but not the SE-tax calculation used here.
• Qualified Business Income (QBI) deduction. The retirement contribution deduction reduces QBI, which can reduce the §199A deduction. For some taxpayers this interaction changes the effective after-tax benefit of contributing.
• Multiple sources of self-employment income. If you have more than one Schedule C business, the contributions from all businesses aggregate toward the §415(c) limit. Each business's net profit is combined before computing the deduction.
• Employer contributions from W-2 income. If you also have a W-2 job with a 401(k), elective deferrals aggregate across all plans. You cannot double-count the $24,500 elective deferral limit.
• Defined benefit plans. A sole proprietor may combine a defined contribution plan (Solo 401(k) or SEP) with a defined benefit plan, but the overall §415(c) and §415(b) limits then interact. This calculator models defined contribution plans only.

Sources

• IRS Publication 560, Retirement Plans for Small Business (2026 tax year) — Rate Worksheet and Deduction Worksheet for Self-Employed; contribution limits table.
• IRS, "Calculating your own retirement plan contribution and deduction" — IRS.gov step-by-step guidance for sole proprietors.
• IRC §415(c) — $72,000 defined-contribution overall limit (2026).
• IRC §402(g) — $24,500 elective deferral limit (2026).
• IRC §401(a)(17) — $360,000 compensation cap (2026).
• SECURE 2.0 Act §109 (Pub. L. 117-328) — super catch-up contribution for ages 60–63, effective tax years beginning after December 31, 2024.
• IRS Notice 2025-67 and IRS Rev. Proc. 2025-43 — 2026 contribution and compensation limits.
• SSA.gov — 2026 Social Security wage base ($184,500).