The contribution limit for a SEP IRA (Simplified Employee Pension Individual Retirement Account) is determined based on your compensation and the tax year's maximum limits set by the IRS. Here's a breakdown of the contribution limits for 2024:
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Employer Contributions:
Employers can contribute up to:- 25% of an employee's compensation (for self-employed individuals, this is based on adjusted net earnings from self-employment).
- A maximum of $66,000 for 2024.
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Self-Employed Individuals:
For self-employed people, calculating the contribution involves accounting for the self-employment tax deduction. The effective limit is typically around 20% of net adjusted self-employment income. -
No Employee Contributions:
SEP IRAs are funded exclusively through employer contributions. Employees cannot make direct contributions to their SEP IRA. -
Compensation Cap:
In 2024, the compensation used to determine contributions is capped at $330,000.
