Can Employees Contribute to a SEP IRA? SARSEPs and IRA Workarounds

Employees cannot make ordinary contributions to a SEP IRA. Only the employer funds the account, and for 2026 the employer can deposit up to 25% of a worker’s pay or $72,000, whichever is less.¹ There is one workaround: if the plan document allows it, you can make regular traditional IRA contributions into the same SEP IRA account, up to $7,500 for 2026 or $8,600 if you’re 50 or older.²

Why the Account Is Employer-Funded Only

Under federal tax law, a SEP IRA is built so the employer makes all contributions.³ There is no paycheck deduction, no salary deferral election, and no way to add your own money the way you would with a 401(k). Your take-home pay isn’t reduced. The contribution is extra compensation the employer provides on top of regular wages.

Employers can make SEP deposits any time up to their tax-filing deadline, including extensions, which is why a contribution for last year sometimes doesn’t land in your account until well into the next one. That timing is the employer’s to manage, not yours.

If personal money gets deposited into a SEP IRA beyond what’s allowed as a regular IRA contribution, the IRS treats the overage as an excess contribution and charges a 6% penalty for each year the money stays in the account.⁴ The penalty compounds, so catching the mistake early matters.

The Traditional IRA Workaround

Although you can’t make employer-type SEP contributions, you can put in regular traditional IRA money directly to the SEP IRA account, provided the plan document allows it.² For 2026 that means up to $7,500, or $8,600 if you’re 50 or older.⁵ These are the ordinary traditional IRA limits. They don’t rise just because the account is labeled a SEP IRA.

Two things to check before you send in a personal deposit. First, confirm the plan document actually permits it; some do, some don’t. If yours doesn’t, open a separate traditional or Roth IRA instead. Second, understand that your ability to deduct that contribution on your tax return may be limited, because participating in a SEP IRA makes you an active participant in an employer retirement plan even when you contribute nothing yourself.

How Being Covered by a SEP Affects Your IRA Deduction

Active-participant status triggers income-based phase-out ranges that can shrink or eliminate the deduction for traditional IRA contributions. For 2026:⁶

Single filers: $81,000 to $91,000
Married filing jointly, you’re the covered spouse: $129,000 to $149,000
Married filing jointly, only your spouse is covered: $242,000 to $252,000
Married filing separately: $0 to $10,000

Below the lower figure you get the full deduction. Above the upper figure you get none. In between the deduction phases out. Even when the deduction disappears, you can still make nondeductible traditional IRA contributions, or contribute to a Roth IRA if your income qualifies. People often discover this only at tax time, so it’s worth running the numbers before you write the check.

Grandfathered SARSEPs: The One Real Exception

A narrow category of SEP plans does allow employee salary deferrals. Salary Reduction SEPs, or SARSEPs, let workers contribute their own pre-tax dollars, functioning more like a simplified 401(k). Congress closed SARSEPs to new plans after 1996, but businesses that already had one can keep operating it indefinitely, and new hires at those companies must be allowed to participate.⁷

For 2026, an employee in a grandfathered SARSEP can defer up to $24,500 of salary, or 25% of compensation, whichever is less. Workers 50 and older get an additional $8,000 catch-up, bringing the maximum deferral to $32,500.¹ Only employers with 25 or fewer eligible participants can continue running one.⁷

If your workplace doesn’t already have a SARSEP, you can’t create access to one. Most small employers that want employee salary deferrals now set up a SIMPLE IRA instead.

The Roth Designation Is Still an Employer Contribution

SECURE 2.0 lets employers offer a Roth option within SEP plans, and this sometimes gets misread as an employee contribution. It isn’t. The employer still makes and funds the deposit. What changed is that the employee can elect to have that employer contribution treated as after-tax Roth money rather than traditional pre-tax dollars.⁸

Choosing the Roth designation adds the employer’s contribution to your gross income for the year it’s deposited. Those Roth-designated employer contributions aren’t subject to withholding for federal income tax, Social Security, or Medicare, so the extra tax won’t come out of your paycheck automatically. Plan ahead with estimated payments or a W-4 adjustment so the bill doesn’t surprise you. The Roth election has to be made before the contribution is deposited, and every participant must have the same opportunity to make the choice.

What This Means in Practice

If your goal is to move more of your own money into retirement savings each year, a SEP IRA won’t be the vehicle. Your options are to ask whether the plan document permits regular traditional IRA contributions into the same account, or to open a separate traditional or Roth IRA on your own. Either way, keep the active-participant phase-outs in mind before assuming the contribution will be deductible.

1
Internal Revenue Service. SEP Contribution Limits (Including Grandfathered SARSEPs)
2
Internal Revenue Service. Retirement Plans FAQs Regarding SEPs
3
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
4
Internal Revenue Service. Sample Article for Organizations and Employers to Use to Reach Customers
5
Internal Revenue Service. Retirement Topics – IRA Contribution Limits
6
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
7
Internal Revenue Service. Retirement Plans FAQs Regarding SARSEPs
8
Internal Revenue Service. SECURE 2.0 Act Changes Affect How Businesses Complete Forms W-2