Self-employed with irregular income? A SEP IRA lets you contribute up to $72,000 in 2026 and adjust or skip contributions as your earnings change.
Key Takeaways
- Saving a set percentage of each payment, instead of a fixed dollar amount, lets your savings rise and fall with your income.
- A SEP IRA lets self-employed people save for retirement with contributions that can change from year to year.
- The 2026 SEP IRA limit is the lesser of 25% of compensation or $72,000.
- If you work for yourself, your effective limit works out to about 20% of net earnings after the self-employment tax deduction.
- You can fund a SEP IRA for a tax year up until your tax filing deadline, including extensions.
- SEP IRA withdrawals are taxed as ordinary income, and taking money out before age 59½ generally means a 10% additional tax.
One simple way to save for retirement with irregular income is to pair a flexible account with a regular saving habit. A SEP IRA lets self-employed people put in as much or as little as each year allows, up to the lesser of 25% of compensation or $72,000 in 2026. A habit like saving a set percentage of every payment keeps you moving forward in slow months.
When you're self-employed, your income rarely looks the same from one month to the next. There's also no employer taking 401(k) contributions out of a regular paycheck. Below, we'll walk through how to build a savings habit, how a SEP IRA works, how much you can put in, and how withdrawals are taxed, and what happens if your work slows down.
Why Is a SEP IRA Good for Self-Employed People With Irregular Income?
A SEP IRA is a retirement account for business owners, including self-employed individuals. Under the hood, a SEP IRA is a Traditional IRA, so it follows the same investment and rollover rules you may already know.
You Can Change or Skip SEP IRA Contributions Each Year
The biggest perk for variable earners is flexibility. The IRS confirms you're not required to contribute every year. The Department of Labor puts it simply, noting that each year you decide whether to contribute and how much. If you earn more one year, you can save more. If you earn less, you can save less or skip that year.
You Can Have a SEP IRA Alongside a Workplace 401(k)
Side income counts, too. You can open a SEP for your freelance business even if you participate in a 401(k) at your main job. That makes a SEP IRA a natural home for irregular side-hustle earnings.
Are SEP IRA Contributions Tax-Deductible?
SEP contributions are generally tax-deductible, and the account's investment earnings aren't taxed each year. If you're self-employed, you claim the deduction on Form 1040, Schedule 1 of your personal tax return. That means contributing more in a high-earning year can lower your tax bill in the year it would otherwise be highest.
How Much Can You Contribute to a SEP IRA in 2026?
SEP IRA contributions are limited to $72,000 or 25% of compensation, whichever is less, in 2026. The contribution limit and compensation ceiling both increased for 2026. You can generally make a SEP IRA contribution for a given tax year up until your tax filing deadline, including extensions.
| Account |
2026 Limit |
2025 Limit |
Catch-up contribution (age 50+) |
| SEP IRA |
$72,000
|
$70,000
|
Not allowed
|
| Traditional IRA |
$7,500
|
$7,000
|
$1,100 in
2026
($1,000 in
2025)
|
| Roth IRA |
$7,500
|
$7,000
|
$1,100 in
2026
($1,000 in
2025)
|
The Traditional and Roth IRA limits are combined, not per account. That $72,000 ceiling is nearly ten times the $7,500 limit, so eligible self-employed savers can put away far more in a SEP IRA.
Because the SEP deadline includes extensions, you may still be able to make a contribution for last year if you filed a tax extension. Check your extended filing date before you assume the window has closed.
How Do You Calculate Your SEP IRA Contribution If You're Self-Employed?
If you work for yourself, you can't simply take 25% of your profit. Here's how to estimate your maximum contribution instead.
| Step |
What to do |
| 1 |
Start with your
net earnings
from self-employment, which is roughly your business profit.
|
| 2 |
Subtract half of your self-employment tax. |
| 3 |
Multiply what's left by
20%
to get your maximum contribution, up to the $72,000 cap.
|
For example, say you earn $100,000 in net self-employment income. Half of your self-employment tax would be about $7,065. That leaves about $92,935, and 20% of that gives you a maximum SEP contribution of about $18,587.
Why 20% and not 25%? Your contribution lowers the earnings it's based on, so your maximum contribution is effectively about 20% of your net business income.
How Are SEP IRA Withdrawals Taxed?
You usually get a tax break when money goes in, so the IRS collects when it comes out. SEP IRA withdrawals are taxed as ordinary income, just like withdrawals from a traditional IRA.
| When you withdraw |
How it's generally treated |
| Before age 59½ |
Ordinary income tax, and generally subject to a
10%
additional tax unless an exception applies
|
| Age 59½ and older |
Ordinary income tax, with
no
early withdrawal penalty
|
| Age 73 and older |
Ordinary income tax, and you must take out a minimum amount each year. These withdrawals are called
required minimum distributions (RMDs),
and they must start at age 73
|
In limited circumstances, withdrawals before age 59½ may qualify for IRA early withdrawal exceptions to the 10% additional tax. Specific rules and limits apply, so consider speaking with a tax professional before taking money out early.
How Do You Save for Retirement When Your Income Changes Every Month?
A steady paycheck makes saving automatic. With irregular income, you build the system yourself. These habits can help.
Save a Percentage, Not a Fixed Amount
Instead of aiming for the same dollar amount each month, you could pick a percentage of every payment you receive and set it aside. When a big client pays, you save more. When work is slow, you save less, but you never stop completely.
Keep a Buffer for Slow Months
An emergency fund can help give you cash to cover bills when work dries up. That way, you won't need to pull money out of your retirement account, which can trigger taxes and penalties.
Set Money Aside for Taxes
Self-employed people who need to make estimated tax payments generally pay them four times a year. Setting aside a share of each payment for taxes can help prevent a large tax bill from eating into your retirement savings.
Top Up Once You Know Your Full-Year Profit
You don't have to guess how much you'll earn. Because you can fund a SEP IRA for a given year until your tax filing deadline, including extensions, you can make smaller contributions during the year and top up once your books are closed.
What Happens to a SEP IRA If You Stop Being Self-Employed?
Irregular income sometimes turns into a full-time job offer, a career break, or a business that winds down. A SEP IRA handles those changes without much fuss.
Can You Keep Your SEP IRA If You Close Your Business?
Yes. If you go out of business, the IRS confirms that the balance in a SEP IRA can be left untouched. Your savings keep their tax-deferred status and can stay invested until you need them.
How Do You Close a SEP IRA Plan?
The IRS notes that SEPs can be terminated at any time. There's no formal filing involved, and you do not notify the IRS when you end the plan. If you pick freelance work back up later, you can set up a new SEP for that year.
Let Your Retirement Savings Flex With You
An uneven income doesn't have to mean uneven retirement progress. A SEP IRA lets you match your savings to what you actually earn, contributing generously in strong years and easing off when business slows. Pair that flexibility with a simple habit, like saving a slice of every payment, and you'll keep moving forward no matter what the month looks like.
PensionBee makes it simple to bring everything together. If you're self-employed, PensionBee offers a SEP IRA designed for freelancers, independent contractors, and solo business owners. You can also roll over old 401(k)s and IRAs into one PensionBee IRA, so all your savings sit together. Every eligible contribution and rollover can be eligible for a 1% match (terms and conditions apply). Many rollovers happen automatically, and for any that need extra attention, our personal rollover managers, called BeeKeepers, are here to help every step of the way.
Frequently Asked Questions (FAQs)
How do I save for retirement with irregular income?
One way to save is by picking a percentage of every payment to save instead of a fixed monthly amount. Keep an emergency fund for slow months and set money aside for taxes. A SEP IRA works well for irregular income because you can change or skip contributions each year.
What is a SEP IRA?
A SEP IRA is a retirement plan specifically designed for self-employed individuals and small business owners. SEP IRAs can be used by sole proprietors, freelancers, and independent contractors who want a retirement plan with higher contribution limits and simpler administration than some traditional employer plans.
Can I open a SEP IRA if my income is irregular?
Yes. SEP IRAs don't require a contribution every year, so you can raise, lower, or skip your contribution based on how your business performs.
How much can I contribute to a SEP IRA in 2026?
If you're a business owner, you can contribute up to $72,000 or 25% of your adjusted compensation in 2026, whichever is less.
What’s the deadline to contribute to a SEP IRA?
You can generally contribute to a SEP IRA for a given tax year until the tax filing deadline for the following year, including extensions.
Can I have a SEP IRA and a 401(k) at my day job?
Yes. You can open a SEP IRA for your freelance or side-business income even if you also participate in your employer's 401(k).
Can I have both a SEP IRA and a Traditional or Roth IRA?
Yes, you can contribute to both a SEP IRA and a Traditional or Roth IRA in the same year. Your ability to deduct Traditional IRA contributions or contribute to a Roth IRA depends on factors such as your income and whether you're covered by a retirement plan at work. A SEP IRA counts as an employer retirement plan for these purposes.
Can I make catch-up contributions to a SEP IRA?
No. SEP plans don't allow catch-up contributions because they're funded by employer contributions, not employee deferrals.
What happens if I over-contribute to a SEP IRA?
Excess contributions may be subject to a 6% excise tax each year until corrected. Contact your SEP IRA provider if you discover an excess contribution so you can determine how to correct it.
Can I contribute to a SEP IRA monthly?
Yes. You can make SEP IRA contributions as often as you like during the year, up until your tax filing deadline, including extensions. Contributing after each big payment is one way to match your savings to your income.
