Contributions an employer can make to an employee's SEP-IRA cannot exceed the lesser of: 25% of the employee's compensation, or. $57,000 for 2020 and $58,000 for 2021 ($56,000 for 2019)
SEP IRA Contribution Limits for 2019
For 2019, a self-employed business owner effectively can salt away as much as 20% of his or her net income in a SEP IRA, not to exceed the maximum contribution limit of $56,000. That's up from $55,000 in 2018.
SEP-IRA contributions can be made for last year until the tax filing deadline. Filing an extension will generally allow you to delay filing a tax return until October 15. You will still have time to establish a SEP-IRA and make a SEP-IRA contribution until the tax filing deadline.
As of 2019, self-employment tax is 15.3 percent on the first $128,400 of net earnings, so reduce your net earnings by one-half of 15.3 percent, or 7.65 percent. The easy way to do this is to multiply net earnings by 92.35 percent.
You can both receive employer contributions to a SEP-IRA and make regular, annual contributions to a traditional or Roth IRA. Employer contributions made under a SEP plan do not affect the amount you can contribute to an IRA on your own behalf.
SEP plan limits
For a self-employed individual, contributions are limited to 25% of your net earnings from self-employment (not including contributions for yourself), up to $58,000 (for 2021; $57,000 for 2020).
As of 2017, you can contribute up to 25 percent of your self-employment income to a maximum of $54,000 (up from $53,000 in 2016). Read the full IRS contribution rules here. And remember, that money is tax-deductible, so the more you contribute, the fewer taxes you pay this year.
You can still set up and contribute for 2020.
A SEP IRA is really great for those looking to make a last-minute tax-deductible contribution for the past year. If you would like to contribute the maximum amount possible in 2021, check out the Solo 401(k), in addition to a SEP IRA.
Contributions an employer can make to an employee's SEP-IRA cannot exceed the lesser of: 25% of the employee's compensation, or. $57,000 for 2020 and $58,000 for 2021 ($56,000 for 2019)
Any taxes due on 2020 distributions from IRAs or work-based retirement plans like 401(k)s are also due May 17th. For those self-employed persons who are sole proprietors, the Solo 401(k) and SEP IRA contribution deadlines are also extended to May 17, 2021, for 2020 contributions.
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