Editing SEP-IRA (section)

====Reduced rate====
The limit of 25% applies to wages, not (adjusted) net profit. In the above example, where an employee earns $40,000 and the employer contributes 25% of that, $10,000, the employee has received $50,000 total, of which 20% goes to the SEP-IRA.

When a business is a sole proprietorship, the employee/owner both pays themselves wages and may also make a SEP contribution, which is limited to 25% of ''wages'', namely, profits minus SEP contribution. For a particular contribution rate ''CR'', the reduced rate is ''CR/(1+CR)''; for a 25% contribution rate, this yields a 20% reduced rate, as in the above.<ref name=":0" />