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If you have self-employed income in addition to your regular job, can you contribute to a SEP IRA even if you have a 401k at work? This question hit home for me a few years ago due to the income generated from this website. To get right to the point, the answer to the question is yes, as I’ll explain in a minute.

So, what’s the $100,000 mistake? Based on my accountant’s advice, I mistakenly contributed far less to my SEP IRA than I could have. The mistake had to do with whether 401k contributions at work limit the amount you are entitled to contribute to a SEP IRA based on unrelated self-employed income. It was a painful lesson, as you’ll hear in the podcast. Here are the details:

Podcast of this Article

If an employee participates in his or her employer’s retirement plan, can he or she set up a SEP for self-employment income?

The IRS has answered this very question:

“Yes, you can set up a SEP for your self-employed business even if you participate in your employer’s retirement plan at a second job.”

This answer comes from an IRS FAQ about SEP plans. That’s good news for bloggers, many of whom are employees with 401k plans in addition to self-employed income.

What are the tax advantages of an SEP-IRA?

The tax advantages are similar to a 401k. You can deducted your contributions and your earnings grow tax-deferred. You will be taxed on withdrawals from an SEP-IRA.

What’s the maximum contribution to an SEP?

The maximum contribution depends in part on whether the contribution is for an employee or, in the case of those self-employed, the owner. For 2017, the maximum contribution on behalf of an employee to a SEP IRA is the lesser of $54,000 or 25% of your ‘eligible compensation.’ For the self-employed, the contribution limit in 2017 is the same: the lesser of $54,000 or 25% of earnings, according to the IRS.

Now, to the question my accountant got wrong. Let’s assume that in addition to self-employed income, you also have a regular job where you contribute to a 401k. Do your 401k contributions reduce the amount you can contribute to a SEP IRA?

The answer is no, assuming that the 401k and SEP IRA are with two different companies not under common control. Why? While the employee contribution limits to a 401k are per person, the employer contribution limits (including a SEP IRA for the self-employed) are per plan.

As always, consult a tax professional (not a blog) before making any decisions.

Table of Contents:

Where to Open a SEP IRA

In 2010, I opened a SEP IRA at TD Ameritrade (Formerly  Scottrade). I’ve been very happy with my decision, in large part because of the low trading costs and the option of visiting a physical Scottrade branch. You can check out a full list of the best brokers for IRA retirement accounts, too.

Next Steps

Author Bio

Total Articles: 1083
Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Article comments

Kevin @ Change Your Tree says:

Great information–thanks.

I was actually wanting to look into this and it just happened to pop up in my feed reader.


Andy says:

I have w2 income and 1099 income. I have an employee that has been with me for 3 years. I have a 401k set up for my employEE. I heard that I would not have to make an employer contribution to the employees SEP acct bc they can not be participating in 2 plans at the same time which would help me exclude the employee from ER contributions. Is this true?

Tyler says:

The question I’m still trying to find the answer for is: what if I have a 401k and an individual Roth IRA…can I still open a SEP-IRA through my side biz and contribute? I’ve found some people saying it’s fine, some people saying you can’t have your personal and a SEP IRA. What have you found?

DR says:

Tyler, interesting question. Of course, you can contribute to a 401k and SEP as I covered in this article. In addition, in the context of Roth accounts, the IRS has stated that you can contribute to both an SEP and Roth IRA: “Yes, you can make a contribution to a SEP-IRA and a Roth IRA.” This is taken from a FAQ from the IRS. Obviously you should consult an SEP specialist. I’d suggest talking to the brokerage company with whom you plan to open the account. I have a rollover IRA with Vanguard, and they were very helpful in answering similar questions. Good luck!

Jim says:

This is helpful, but one remaing question: Does the emmployer match count toward the total 401(k) + SEP limit, or just what the employee contributed?

Fred says:

I too am interested in the answer to this question. If my employer makes a contribution to my 401K plan, do I have to consider that contribution in calculating my SEP limits?

Rob Berger says:

Fred, according to Bankrate (http://www.bankrate.com/finance/retirement/employer-match-counts-toward-401k-limit.aspx), employer contributions don’t count toward your 401k limits, but they do count toward your total combined limit of $51,000 in 2013. However, my accountant says that employer contributions do not count toward the $51,000. So my advice is to check with your accountant to confirm.

JR says:

Thank you for publishing the information. I do have a question however. I already have a SEP, have my own business and also work as contracted labor for another company. This other company issues me a W-2 and offers no benefits, i.e, the contract labor classification. Can I contribute up to 20% of my contracted wages from the W-2 as well as my net from Schedule C into my SEP, or must I open up another IRA, which doesn’t make sense since I won’t have the advantage of pooling all my retirement funds? Thank you.

DR says:

JR, I would recommend that you take a look at IRS Pub. 560, which you can download from a link in the article. As you’ll see in Pub. 560, a common law employee cannot set up his or her own retirement plan such as an SEP from that income ( you have self-employed income too, which is a separate matter). Whether you are a common law employee depends on several factors, which are described in the publication.

Alan says:

I’m having a hard time grasping the maximum contribution part, even after reading through IRS Pub. 560. Maybe you can help if I supply details. Let’s say I make $40,000 at a regular job, and make $2,000 from blogging. I contribute $4,000 to my regular work 401k and $5,000 to a Roth IRA. How much can I contribute to a SEP-IRA?

Amber says:

I think you can contribute to $2000 *.25 = $400.

Walter says:

for self employed individuals the max percentage is 20%.

Soyab Husein says:

I have a small business and pay myself a salary (W2) and contribute 25% to a SEP IRA.
In 2008 my children get an adhoc salary (ages 17 and 19 and on W2).
Also, in 2008 I have an employee who also has another job with Company X where he participates in a 401K plan.
I’m led to beleive that all employees on the payroll have to recieve the same %age of SEP IRA contributions.
Since my employee is already in a 401K plan can I also contribute to a SEP IRA for him?
If not, is there a legal obligation for me to compensate the employee and can I continue to contribute to my SEP IRA? Also, do I have to contribute to my childrens SEP IRA?
Your answers will really be appreciated.

adam says:

This is helpful, but one remaing question: Does the emmployer match count toward the total 401(k) + SEP limit, or just what the employee contributed? Could somone please answer this questions

Fred says:

I’ll second this one here, too. I am looking for the answer to this question, which seems elusive.

Jeff says:

If you have a 401k and profit sharing plan that takes you to the max of $46,000, can you still contribute to a SEP_IRA for additional self employed income?

paul says:

Contribution limits are governed by a couple of different rules.

In short though, the maximium limit (46k in years past, 49k in 2010+2011) are combined from employee deferrals, plus match (401k) and profit sharing (401k/PSP or SEP).

If you’re trying to maximize your deferrals from 2 different plans, it really pays to talk to a CPA as part of your tax filing… since many will also indemnify you if they do it wrong and you get a penalty.

Laura says:

Why do I have to take in my contributions to my employer sponsored 401k to reduce my contributions to my self employed sponsored SEP? In first case I am the employee and in the second case I am the employer. It seems like I only have to take into account all contributions if all contributions are made by the same employer.

Diana says:

If I have a small business and I already have a SEP established can I start a nwe 401(k) plan as well? I don’t want to contribute to both in the same year, but am I even allowed to start a new plan if the other exists?

Gathering Sep IRA information and am happy to learn it won’t have to be an either/or situation. I can keep my other plan too.

Ferdinand Cillis says:

Thank god for 401k plans. Don’t know what we would do without them!!

Trav says:

I have 2 separate businesses. Can i contribute max to my solo 401kplan and max out a sep plan? thanks

Alwaysjammin says:

Trav, I have the same question. I am GUESSING that it goes a total of 49k/person regardless of source of income. For instance, I have 2 companies: Company A with an individual 401k and Company B with a SEP-IRA. I am paid a salary of 40k from Company A which allows me to contribute 16,500+10,000 (25% of 40k) = 26,500. If I understand the article correctly, I can still contribute a maximum of 49,000 – 26,500 = 22500 from Company B via a SEP-IRA. Say that I make 80k in Salary from Company B, I can contribute 20K (25% of 80k) into the Sep-IRA. That is my understanding so far at least. Love to hear from others to see if this is accurate

Max says:

Have a w-2 with $ 5,000 in 401 k plan. 20% of my profit sharing plan from my schedule c is $ 45,000. Can I take the whole $ 45,000 or am I limited to $ 44,000.00.

Crissy says:

I have a business with 2 employees that has a sep in place. One employee is also employed full time at another job that will max is $50k in retirement contributions in 2012. Can my business with 2 employees still max the 25% contribution for the 1 employee since the other is already maxed elsewhere?

SV says:

I have maxed out my Roth 2012 contribution and want to add more funds to my SEP IRA for the same tax year. I have already gotten my tax refund (Fed and State for 2012). How do I report I’ve added additional SEP IRA funds for tax year 2012 to the IRS?

Rob Berger says:

SV, I don’t have the answer to your question, but the following is a link to the IRS website page about SEPs–http://www.irs.gov/publications/p560/ch02.html

DJ says:

Hello DR:

So I have a 401K at work and have maxed it out in 2012 ($17K I think). Me and my wife have our own part-time consulting business as well and have opened a SEP IRA. I can’t do any more personal IRAs (trad/roth) because we exceed the income limit.

I am getting a lot of different answers on how much to contribute to SEP and if its taxable or not. The income from the consulting business is $20K each. I was initially told by one agent that I can contribute 25%, so will $4K be the right number for each of us?

I am assuming this $4K will not be taxable or will this also be bound by the income limit?

Any advice is truly appreciated!

Thanks much. DJ

Rob Berger says:

DJ, my understanding of the SEP IRA is that if you have employees, the figure is 25%. If you don’t have employees, the owner can contribute 20%. But that’s where you need to consult with a tax specialist to be certain. I suspect TurboTax could also walk you through this. Good luck!

jk hide says:

I have corporation for my business, opened 401K in dec-2013 and contributed 6000 as salary deferral and now want to know if i can contribute 25% of my salary into SEP plan vs contrbuting to 401K as profit sharing.

Rob Berger says:

JK, this is a question you should ask a tax accountant. I’ve been told that for my business I can contribute each year to either a solo 401k or a SEP IRA, but not both. As for those who are self-employed, I believe the limit is 20% of income to a SEP IRA vs. 25% to a solo 401k. But again, with these issues I wouldn’t leave anything to chance. Talk to a tax accountant and/or retirement specialist.

Abdul Alhakawati says:

I think you can contribute to both plans in the same year but the total amount can not exceed 25%:

“If your business sponsors another defined contribution plan in addition to your SEP plan (for example, a profit-sharing plan or a 401(k) plan), then your contributions for yourself to all these plans may not exceed 25% of your net earnings from self-employment (not including contributions for yourself), up to $52,000 (for 2104, $53,000 for 2015). Note that salary deferrals are not subject to the 25% limit and catch-up contributions are not subject to the $52,000 limit.”

rjc says:


First, thank you so much for addressing this issue- no one can give me a straight answer on this! I have a small business where I receive the maximum SEP-IRA contribution ($52k). I also have a side job moonlighting as a independent contractor (1099). Can I open an additional solo-401k? If so, how much can I contribute?

Thanks again!

Rob Berger says:

rjc, you’ll want to consult with a tax professional on this. My concern with what you’ve proposed, as I understand it, is that you control both businesses. But again, you’ll want to check with a tax accountant.

rt says:

Rob, thanks again for this post/blog!!

(it’s always nice to find someone from NoVa on here as well)

I have an llc set up for freelance software development jobs where it’s just myself and I can take on corp-corp work. I understand I can set up a solo 401k or SEP-IRA (or one of several other options).

However, what I’m learning is that not everyone is able to take on contractors via c2c and I’m finding many companies only want to deal with 1099 (me again, non-employee and unincorporated). Do I need to set up a separate SEP-IRA for this type of work relationship? I don’t wish to operate outside of any rules/regulations or double stack any deductions but at times I may have work with c2c-capable clients, other times I’ll have work with 1099-only clients…is it okay to contribute (within limits) to either or both of these within the year (so long as I heed revenue & contribution limits)? I thought this would be a common scenario but can’t find many answers…or a good cpa (hint, hint) 😉

thanks in advance!

Jason Williams says:

I have a 401k at work that allows me to contribute up to around $7k per year, with company match of around $1k. (I can’t get to the $17,500 IRS limit because the company’s particular 401k plan structure doesn’t allow it.) I would like to put away more for retirement via contributing to a Traditional IRA, up to the $5,500 annual limit. From what I’ve read online from various sources, I believe this should be possible. However, one complication may be that my wife contributes to a SEP, to the tune of about $5,000 per year. She doesn’t have a 401k, and she doesn’t contribute to a traditional IRA, just that SEP. Still, I wonder if this makes it so I can’t make IRA contributions on top of my 401k contributions?

Thanks in advance for any perspective you might be able to lend.

steve says:

Just to be clear, I receive a W-2 from a company where I’m not eligible to participate in the retirement plan and I have a side business Sch C, no employees and I have a SEP. Assuming no income limitations, can I contribute to both the SEP for the net Sch C and a traditional IRA based on my W-2 income?

Rob Berger says:

I believe you can, but I’d confirm with a tax professional to make sure.

BD says:

Hello Rob,

My Business (ABC LLC)
17500 (401k salary deffered)
+8000 (employer match)
+26500 (401 profit sharing/)
52000 max limit reached (2014)

Do I still have any room left to open SEP IRA for my other business XYZ LLC and contribute anything in that enity ?

Rob Berger says:

BD, while I’m not a tax expert, I don’t believe so. The $52,000 max that you’ve already hit would apply to the SEP IRA as well. The assumption here is that this all comes from the same business OR different businesses with common control.

CG says:

Hi Rob – Thank you for posting this. I’m facing this situation now and getting mixed messages.
I was FTE in 2015, but also a contractor/independent consultant. I don’t have my consulting business as an EIN, but rather business income/expenses, under my SS#.

Q: Can I have a SEP, even though I have a 401(k)? And if so, do I lose the tax deferral benefit since my 401(k) is under my SS#, just like my SEP would be?

You many have answered this earlier, but I’m 10-0% certain.

Rob Berger says:

CG, my first advice is to consult a retirement specialist. This stuff gets really tricky. That said, you can have a 401k and a SEP. I don’t believe an EIN is required, but again, I’d highly recommend that you consult with an expert before making a decision.

skinger says:

Hey Rob…

Here’s my situation. I fully fund a 401(k) through normal work salary deferrals. I also receive 1099-MISC income from a board of directors position. Can I set-up a SEP IRA on the board income, and if so, can I get tax deferral on that SEP contribution or would it be viewed as a nondeductible IRA contribution?

Jules Carz says:

1. I work for 2 different employers. Both have different matching contributions for their 401K and Thrift Saving Account. (Federal Job). I know that limit is 18000/year for age less 50. My question is should I open up a 401K with each company in order to maximize matching contributions from each company?

For example I need to contribute at least 5% of base pay annually of my federal job in order to maximize their 3% matching contribution.

2. I am also self employed and own my own company (work for myself, no employees.) I assume I can also ope a SEP and contribute up to 20% of my self employed earnings?

3. Can I save anywhere else as use it as a tax deductions?

Daniel says:

I’m a partner (soon to be selling) and had $16k taken to “employee 401k” even though I’m not an employee. I want to set up a SEP for my partnership (self-employed) income. Am I stuck? Can I do this? Accountant told me I can take the $16,000 deduction on line 28 of 1040 but I would rather take the SEP amount or maybe both amounts. Can I contribute the difference between my SEP amount and the amount that was put into 401k?

Rob Berger says:

Daniel, I think the answer is it “depends.” I was able to make 401k contributions and SEP contributions, but they were with two totally different companies. If you think your accountant is wrong, I’d suggest getting a second opinion.

William T says:

Let’s Build on this blog post. I have 3 jobs 1) W2 w/ 401k maxed, 2) 1099 w/ SEP IRA maxed $53,000, 3) another 1099 job and I’m curious if I can max this SEP IRA

OR maybe I’ve already maxed the 1st 1099 job SEP IRA and thus have no ability to max the 3rd job.

What’s your take?

Rob Berger says:

William, that’s an excellent question. I can’t say I’ve ever talked to somebody who made enough from three different jobs to max out retirement accounts from all three! I think this question is one for a tax professional.

Angelique says:

Is the 20% of freelance income before or after business expenses?

Ferran Ros says:

OK, question for you, what is you have a solo 401k instead of a sep.

I have a FT employee job where i have a traditional 401k, maxed at 18K, company matches another 10K.
I had a sep ira, which im now converting to a solo 401k for other reasons for my 1099 work, what is the maximum i can contribute to this solo 401k? 53K in employer nonelective deferrals? like a sep correct? or is this different as now I have two 401 Ks

Fred says:

Here’s a question. If one has a job, W-2 income, plus side work, 1099 income, is the allowable contribution 25% of the sum of both of those? Or 25% of the 1099 income only?

moni moon says:

I am a sole proprietor of a consulting business. I wanted to open a solo 401 with vanguard because of the $18,000 employee deferral but for the employer contribution of 20% I would like to use SEP account with a different company. Is it possible? Thank you!

MC1984 says:

Excerpt from Pub 560:
More than one plan. If you contribute to a defined
contribution plan (defined in chapter 4),
annual additions to an account are limited to the
lesser of $53,000 or 100% of the participant’s
compensation. When you figure this limit, you
must add your contributions to all defined contribution
plans maintained by you. Because a
SEP is considered a defined contribution plan
for this limit, your contributions to a SEP must
be added to your contributions to other defined
contribution plans you maintain.

What am I missing here, and what sources did you provide your CPA to show that a W2 employee maxing out their 401(k) (not owned by the participant) can also add $54,000 in 2017 to a SEP plan for a separate business? Really curious about this but cannot find anything to show this is allowed, the excerpt above seems to indicate that all DC plans are grouped together.

Melissa Rawsky says:

Provided you are not an owner in the business that is doing the 401(k), it is treated as a completely separate entity from your self-employed biz, and subject to its own total annual limitation ($54k in 2017). The $18k limitation is per-person, so while you would not be able to defer any of your compensation from self-employment if you maxed out your employer’s 401k plan (the only place this really applies is in a structure like an S-corp where you receive wages from your own biz), your company could make the maximum contribution of $54k on your behalf. Your W-2 employer could also make contributions on your behalf, up to $36k ($18k max deferral under their W-2 plus $36k = $54k max total annual under that company). This would be a very generous employer!

Tiffani says:

I have this exact scenario and my tax person is saying my husband and I are limited to $18,500 per person on contributions to our 401k (we have an s Corp, but also pay ourselves a wage). Are you saying we can actually contribute up to $54k per person in combination do SEP and 401k?

Wayne Rutledge says:

The SEP IRA contributions are from your employer or your LLC. You are the employee of your LLC. The 401k contributions are from you personally. Employer contributions versus employee contributions are 2 different sources.

Puzzled says:

Excellent article. I have a 401K plan at work to which I contribute the max amount. I also have a side gig doing options trading. The options trading business is through a partnership which is a legal entity set up with the IRS. I don’t take w2 income from the partnership and its profit passes through to my personal income for tax purpose. The question I have is whether my partnership can contribute a SEP IRA on my behalf based on the profit.

Many thanks.

Brian Skelton CPA says:

Great article, some points, your employer contribution to your 401K do NOT count towards the 18k for 2017, or 24k if age 50+
As for the SEP IRA – all your contributions should be from your LLC- technically that’s your “employer” as you are SELF employed in an LLC. An LLC member can have the LLC contribute the funds to your account.
Hope that helps!
Brian Skelton

Indira Betina says:

For 3 months my husband was self-employed in 2017; then he closed business and became an employee. He had a sep-ira with one employee the first 3 months. Then the company e became employee offers 401- plan with matching contribution from employee. What is the maximum he can contribute to his sep plan. Thank you

Andrew Z says:


The link to the IRS site is broken. Do you have the correct link? (IRS FAQ about SEP plans – link does not work).

Christina Castle says:

Hey Andrew, thanks for pointing this out. The link has been updated. We hope this helps!

Carrie says:

I found out the hard way for tax year 2017 that if my first job has an employer sponsored 401K that I contribute to and if my household AGI (I think) is greater that 120K I cannot contribute to a SEP IRA for my second job. I am going through all of the forms on IRS.gov and trying to find the specifics to avoid this for 2018 tax year.

Melissa Rawsky says:

Carrie, I think you must have stated something incorrectly. By “second job” do you mean self-employment? Or do you mean another W-2 job? Either way, that does not really make sense. AGI doesn’t directly affect SEP IRA contribution options. There is a limit to how much you can have your self-employed biz contribute, however.

Cynthia Pearson says:

Have a client with large Schedule C income such that he can max out a SEP IRA at $55,000 in 2018. He also is a llc member and 20% owner of return filed as partnership where he received GPayments and ordinary income all subject to SE tax. His GP includes his 401k of $24,50 as part of the Gpayment and thus every year we deduct it as adjustment to income. Can he have both of these deductions totaling $79,500 as adjustments to income? Is a 20% ownership considered too much and look like the two business have common control and thus he would be overall limited in all plans to $55k?