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joehuber3
New Member

If this years self employment income in 2017 is the same what is the maximum amount I can contribute to my sep ira and what would be the amount it would save me in taxes?

I am 61 this year. I am wanting to contribute maximum amount if it makes sense, and then after first of the year withdraw it to purchase a home. My total income for 2018 will be about half of what it is in 2017. 

1 Best answer

Accepted Solutions
SweetieJean
Level 15

If this years self employment income in 2017 is the same what is the maximum amount I can contribute to my sep ira and what would be the amount it would save me in taxes?

 Employers can contribute up to 25% of the salaries that each employee earns up to an annual maximum limit. For 2017, that maximum is $54,000.

Note that the 25% limitation works a little differently for those who are self-employed. In that case, the 25% refers to the self-employed worker's net earnings from the business. To calculate that figure, you have to start by taking out the half of the self-employment tax, which represents the employer's portion of the payroll taxes that go toward Social Security and Medicare. Next, you have to account for the fact that the contribution to the SEP IRA reduces the taxable earnings from the business.

The net result of that math is that the 25% limitation on net earnings works out to 20% of your adjusted profit after the self-employment tax adjustment.

Keep in mind that Congress may change the tax law for 2018.

View solution in original post

7 Replies
Carl
Level 15

If this years self employment income in 2017 is the same what is the maximum amount I can contribute to my sep ira and what would be the amount it would save me in taxes?

Nobody in this public user-to-user forum, or at TurboTax for that matter, can access your account, your tax return, or see your screen. See <a rel="nofollow" target="_blank" href="https://en.wikipedia.org/wiki/SEP-IRA#Self-employed">https://en.wikipedia.org/wiki/SEP-IRA#Self-empl...> for the math you may need to perform.
SweetieJean
Level 15

If this years self employment income in 2017 is the same what is the maximum amount I can contribute to my sep ira and what would be the amount it would save me in taxes?

SweetieJean
Level 15

If this years self employment income in 2017 is the same what is the maximum amount I can contribute to my sep ira and what would be the amount it would save me in taxes?

 Employers can contribute up to 25% of the salaries that each employee earns up to an annual maximum limit. For 2017, that maximum is $54,000.

Note that the 25% limitation works a little differently for those who are self-employed. In that case, the 25% refers to the self-employed worker's net earnings from the business. To calculate that figure, you have to start by taking out the half of the self-employment tax, which represents the employer's portion of the payroll taxes that go toward Social Security and Medicare. Next, you have to account for the fact that the contribution to the SEP IRA reduces the taxable earnings from the business.

The net result of that math is that the 25% limitation on net earnings works out to 20% of your adjusted profit after the self-employment tax adjustment.

Keep in mind that Congress may change the tax law for 2018.

View solution in original post

TaxGuyBill
Level 9

If this years self employment income in 2017 is the same what is the maximum amount I can contribute to my sep ira and what would be the amount it would save me in taxes?

Actually, when you go through the calculations and math, it is roughly 18%-19% of the Schedule C profit, which based on 20% after the SE adjustment.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p560.pdf#page=22">https://www.irs.gov/pub/irs-pdf/p560.pdf#page=22</...>
SweetieJean
Level 15

If this years self employment income in 2017 is the same what is the maximum amount I can contribute to my sep ira and what would be the amount it would save me in taxes?

Correct!
bjewell5
New Member

If this years self employment income in 2017 is the same what is the maximum amount I can contribute to my sep ira and what would be the amount it would save me in taxes?

then why does turbo tax 2017 only do $53000 not $54000 on their form? this needs an update to allow the 2018 limit
TaxGuyBill
Level 9

If this years self employment income in 2017 is the same what is the maximum amount I can contribute to my sep ira and what would be the amount it would save me in taxes?

@bjewell5   They usually don't update the new software with the new numbers until mid-December to early-to-mid-January.
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