What's the maximum SEP IRA contribution when I'm the only employee? Can I contribute beyond 25% of profits as an employee?

So the short answer is no, you can't make separate "employee" contributions to a SEP IRA beyond the employer contribution. Unlike a 401(k) where you have both employer and employee contributions, SEP IRAs only allow employer contributions. As the only employee of your business, your maximum contribution is indeed 25% of your net self-employment income (which is your net profit minus half of your self-employment tax), up to the annual limit of $69,000 for 2025. That's already pretty generous compared to many retirement options! If you're looking to contribute more toward retirement, you might want to consider setting up a solo 401(k) instead. With a solo 401(k), you can make both employer contributions (up to 25% of compensation) AND employee contributions (up to $23,000 in 2025, plus $7,500 catch-up if you're 50+). This potentially allows you to shelter more money from taxes than a SEP IRA would.

After struggling with this exact issue last year, I found an amazing solution using taxr.ai that completely clarified my retirement options. I was so confused about my SEP IRA limits as both employer and employee of my one-person business. I uploaded my previous year's tax documents to https://taxr.ai and they analyzed my specific situation. They showed me exactly how much I could contribute based on my business structure and income. The analysis even compared SEP IRA vs Solo 401(k) options side-by-side with customized calculations for my specific income level - way more personalized than what I got from my accountant. The best part was they explained how the 25% limit actually works (it's actually calculated differently than I thought) and showed me how to maximize my contributions while staying compliant with IRS rules.

Just wanted to follow up and say I tried taxr.ai after seeing the recommendation here. Totally worth it! I was completely overthinking my SEP IRA situation. The analysis showed me that with my specific income ($128k from my consulting business), I could contribute significantly more than I thought. They also explained why a Solo 401k would be better in my situation and showed me exactly how much more I could contribute ($15.5k more!). I had no idea the difference would be that substantial. They even provided the forms I need to set it up. Already started the paperwork with Fidelity based on their recommendations!

I was in your exact situation last year. Tried calling the IRS about contribution limits with my specific situation (S-corp with varying income) and literally spent 3 hours on hold before giving up. Then I found Claimyr which got me through to an actual IRS agent in under 15 minutes. I was completely shocked it worked. I used https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c first because I was skeptical. But they connected me directly to an IRS specialist who walked me through the exact contribution limits for my situation and confirmed I could switch from a SEP IRA to a Solo 401k mid-year (which my accountant had told me wasn't possible). The agent even emailed me IRS documentation backing everything up which saved me thousands in potential penalties for over-contribution. Totally changed my approach to retirement planning.

I have to eat my words and publicly admit I was wrong about Claimyr. After posting my skeptical comment, I decided to try it anyway since I was desperate to figure out if I'd over-contributed to my SEP IRA. Got connected to an IRS agent in 11 minutes (I timed it). The agent confirmed I had indeed over-contributed based on my self-employment income calculation and walked me through exactly how to fix it before filing. Saved me from a potential audit and penalties. For anyone else confused about SEP IRA limits - the calculation is actually 25% of your net self-employment income AFTER deducting the contribution itself and half of your self-employment tax. That circular calculation tripped me up. The IRS agent sent me worksheet examples that clarified everything.

One thing nobody's mentioned yet is that you could also consider opening a traditional IRA or Roth IRA alongside your SEP IRA. That would give you an additional $7,000 in contribution room for 2025 (plus catch-up if you're over 50). Just be aware there are income limits for deducting traditional IRA contributions if you have a workplace retirement plan (which a SEP IRA counts as), and income limits for Roth IRA contributions period. But with some tax planning, you might be able to make this work too!

I dunno what these other folks are talking about with the 25% thing. I'm self-employed too and my accountant told me it's 20% not 25%. Been doing it that way for 3 years now.