"he can contribute 25% of his earnings to an IRA, is that correct?"
No, that's not correct. A sole proprietor can contribute to a SEP IRA a maximum of 20% of net earnings or $69,000, whichever is less. Net earnings are net profit minus the deductible portion of self-employment taxes. The 25% reduces to 20% because the SEP IRA contribution itself, which is an employer contribution, effectively reduces the amount that determines the amount that can be contributed. The deadline to establish a SEP plan and make a contribution for 2024 is the due date of the tax return, including extensions.
