Retirement contributions are one of the most powerful tax planning tools available to self-employed individuals and business owners. Unlike most deductions, retirement contributions reduce adjusted gross income — which means they reduce both income tax and, for sole proprietors, self-employment tax.

The IRS adjusts contribution limits annually for inflation. This article covers the 2025 limits for the accounts most commonly used by business owners: SEP-IRAs, Solo 401(k)s, SIMPLE IRAs, and traditional IRAs. These figures apply to contributions made for tax year 2025.

SEP-IRA: 2025 Limits

• Contribution limit: Lesser of 25% of net self-employment income or $70,000
• Catch-up contributions: Not available for SEP-IRAs
• Deadline to establish: Tax filing deadline including extensions (up to October 15 for sole proprietors)
• Deadline to contribute: Tax filing deadline including extensions

The SEP-IRA is the simplest option for self-employed individuals. There is no annual filing requirement, no plan document complexity, and contributions can be made as late as October 15 if you file an extension. The 25% limit is calculated on net self-employment income after the SE tax deduction — not gross revenue.

For S-corporation owners, the SEP-IRA contribution is based on W-2 wages paid by the corporation, not on the owner's share of S-corp income. This means the owner's salary directly affects the maximum SEP contribution.

Solo 401(k): 2025 Limits

• Employee elective deferral: Up to $23,500
• Catch-up (age 50–59 and 64+): Additional $7,500 (total $31,000)
• Catch-up (age 60–63, SECURE 2.0): Additional $11,250 (total $34,750)
• Employer profit-sharing: Up to 25% of net self-employment income
• Combined maximum: $70,000 ($77,500 if age 50+; $81,250 if age 60–63)
• Deadline to establish: December 31 of the tax year
• Deadline for employee deferrals: Generally December 31
• Deadline for employer contributions: Tax filing deadline including extensions

The Solo 401(k) allows higher contributions than a SEP-IRA at moderate income levels because of the employee deferral component. A self-employed person with $60,000 of net income can contribute the full $23,500 deferral plus a 25% employer contribution — far more than a SEP-IRA alone would allow at that income level.

The plan must be established by December 31 of the tax year you want to make contributions for. If you miss this deadline, you cannot open a Solo 401(k) for that year — a SEP-IRA is the only option for late openers.

SIMPLE IRA: 2025 Limits

• Employee elective deferral: Up to $16,500
• Catch-up (age 50–59 and 64+): Additional $3,500 (total $20,000)
• Catch-up (age 60–63, SECURE 2.0): Additional $5,250 (total $21,750)
• Employer match: Required — either 3% of compensation (matching) or 2% non-elective contribution for all eligible employees

The SIMPLE IRA is designed for businesses with employees. It requires a mandatory employer contribution, which makes it less flexible than a SEP-IRA or Solo 401(k) for sole proprietors. However, it is simpler to administer than a full 401(k) plan and may be appropriate for small businesses with a handful of employees.

Traditional and Roth IRA: 2025 Limits

• Contribution limit: $7,000 per person
• Catch-up (age 50+): Additional $1,000 (total $8,000)
• Traditional IRA deductibility phase-out (single, covered by workplace plan): $79,000–$89,000 MAGI
• Roth IRA contribution phase-out (single): $150,000–$165,000 MAGI
• Roth IRA contribution phase-out (MFJ): $236,000–$246,000 MAGI

IRA contributions are in addition to SEP-IRA or Solo 401(k) contributions — the limits are separate. A self-employed person can maximize a SEP-IRA and also contribute to a traditional or Roth IRA in the same year, subject to income limits on deductibility and eligibility.

Why These Limits Change Every Year

The IRS adjusts retirement contribution limits annually based on inflation, typically announced in October or November for the following tax year. The figures in this article apply to tax year 2025. If you are planning contributions for a different year, verify the current limits with the IRS or a tax professional.

For business owners doing year-end tax planning, retirement contributions are often the single largest lever available to reduce taxable income before December 31 (for Solo 401(k) deferrals) or before the filing deadline (for SEP-IRA and employer contributions). Understanding the limits is the starting point for that conversation.