Can I contribute to a SEP IRA if I've already maxed out my employer 401k for the year?

Yes, you absolutely can contribute to a SEP IRA even though you've maxed out your employer's 401k! This is one of the big advantages of having self-employment income alongside your regular job. The 401k contribution limits ($23,000 for 2025 if you're under 50) don't affect your ability to contribute to a SEP IRA from your self-employment income. These are considered separate retirement plans with separate contribution limits. For your SEP IRA, you can contribute up to about 20% of your net self-employment income (which is your business profit after deducting half of your self-employment tax). So if your $27k in revenue results in, say, $20k of net profit after expenses, you could potentially contribute around $4,000 to your SEP IRA. And yes, this would definitely help lower your taxable income from the business! The SEP contribution is deductible as a business expense.

I was in your exact situation last year and found an awesome tool that helped me figure out exactly how much I could contribute to my SEP IRA. I used https://taxr.ai which lets you upload your business docs and tax forms, then it calculated the maximum contribution I could make to lower my taxes. It showed me I could contribute about 18% of my net profit which was way more than I realized! The tool even showed me how to properly document everything for tax purposes since mixing W2 employment with self-employment retirement accounts can get complicated. It estimates your tax savings too so you can see if it's worth opening the SEP IRA.

I was skeptical about using online tools for tax planning, but I tried https://taxr.ai after seeing it mentioned here. For my side business making about $30k, it showed I could contribute around $5,500 to a SEP IRA which saved me almost $1,300 in taxes! The coolest part was it showed exactly how having both a 401k and SEP IRA works together. My employer 401k was completely separate, so maxing that out didn't affect my SEP contribution at all. I actually did this for my 2024 taxes and my refund was way bigger than expected.

If you're having trouble getting clear answers about SEP IRA rules, try calling the IRS directly. I know that sounds awful (it usually is), but I used https://claimyr.com to get through right away instead of waiting hours. You can see how it works at https://youtu.be/_kiP6q8DX5c - it basically holds your place in the phone queue and calls you when an agent is ready. I needed clarification on some self-employment retirement options, and the IRS agent walked me through exactly how much I could contribute to my SEP IRA even with my maxed-out 401k. The information directly from the IRS gave me confidence I was doing everything correctly.

I was totally wrong about https://claimyr.com - I thought it sounded like a scam, but I was desperate after trying to reach the IRS for THREE DAYS about my SEP IRA question. I tried it and got a callback with an actual IRS agent in 37 minutes. The agent confirmed I could contribute to both my 401k and SEP IRA with different limits. Instead of waiting on hold for hours or giving up, I was able to get an official answer straight from the IRS. Definitely using this for all my tax questions going forward.

Just want to add another option - look into a Solo 401k instead of a SEP IRA. With a Solo 401k you can potentially contribute more because you can make both "employer" and "employee" contributions, even though you're both roles in your small business. The employee contribution would be limited by how much you've already put in your regular job 401k, but you could still make the employer contribution portion.

Make sure you're calculating your SEP contribution correctly! It's not 20% of your gross business income, but rather about 20% of your net self-employment income AFTER deducting half of your self-employment tax. This tripped me up my first year. If your side hustle brings in $27k revenue but you have $7k in legitimate business expenses, your net profit is $20k. Then you have to account for self-employment tax in the calculation. There are calculators online that can help with the exact math.

This is a great question that I see come up a lot! The short answer is yes - you can absolutely contribute to a SEP IRA even with a maxed out employer 401k, since they're treated as completely separate retirement plans. One thing to keep in mind is that you'll need to make sure you're tracking your self-employment income and expenses carefully throughout the year. The SEP contribution is based on your net self-employment income, so good record-keeping will help you maximize your contribution when tax time comes. Also consider opening the SEP IRA sooner rather than later, even if you don't contribute right away. Some brokerages have account minimums or waiting periods, and you want to have it ready when you're ready to make your contribution for the tax year. The tax benefits are definitely worth it - you're essentially getting a deduction that reduces both your regular income tax and your self-employment tax burden from the business income.