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Disclaimer: I am not an accountant and I am definitely not your accountant. Heads up that you can only contribute 20% of your earnings up (up to the limit) to

Disclaimer: I am not an accountant and I am definitely not your accountant. Heads up that you can only contribute 20% of your earnings up (up to the limit) to a SEP-IRA. This is because you can contribute up to 25% of your taxable income, but your contributions are deducted from your income. For example, if you make $1, and put $0.20 in your SEP-IRA, your taxable income is $1 - $0.20 = $0.80, so the $0.20 you put in is the full 25% of your income. To contribute $55K in 2018, you will need to generate $275K of income.

paulclinger 9y ago
> Heads up that you can only contribute 20% of your earnings up (up to the limit) to a SEP-IRA. I don't think this is correct. We are talking about employER contribution to the employee SEP-IRA account, which is 25% of the compensation, not exceeding the annual limit (https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps-contributions https://www.irs.gov/retirement-plans/retirement-plans-faqs-r...).
- AgalmicVentures 9y ago
  Disclaimer: I am not an accountant and I am definitely not your accountant. You are correct to say that you can contribute 25% of compensation. However, your wages are different than your profits, even as a self-employed person. Let's say you are self-employed and you make $1 of profits and pay yourself $0.80 of wages. You can contribute the other $0.20 you have to your SEP-IRA, since it's 25% of your wages (or 20% of your profits). Because of this, you need $275K of profits to generate $220K of income and a corresponding $55K SEP-IRA contribution. For more, see: https://en.wikipedia.org/wiki/SEP-IRA#Reduced_rate https://en.wikipedia.org/wiki/SEP-IRA#Reduced_rate