Sole Proprietor SEP IRA Documentation

Forum|Forum|7 years ago
June 1, 2019
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I'm a sole proprietor who claims no business expenses (consultant who works from home) so my net business income is just the sum of all my 1099-MISC's. If I want to create an SEP IRA for tax year 2016, does the contribution need to come from a solely business account? Or as a sole proprietor who made $45,000 am I simply eligible to make an SEP IRA contribution equal to 20% of that salary (i.e. $9000)? I'm married filing jointly and we're trying to reduce our taxable income for 2016 at the last minute, but if I need to clearly delineate the contribution as an "employer contribution to SEP IRA from a business account" it seems like a SIMPLE IRA may be simpler way to reduce our taxable income at my level of income, right?

TurboTax Self Employed Online

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Since it is after December 31, 2016, a SIMPLE IRA deduction is not available to you for 2016 - this type of account needs to be established and contributed to during the tax year to which the deduction would apply.

You are able to open a SEP and contribute to it until April 18, 2017, to reduce your 2016 tax liability. You can then (at the same time, if you wish), establish a SIMPLE plan for 2017.

You should consult with your financial institution about whether they will require you to use a business account to fund the plan, or if you can use a personal account.

Anonymous

Answer

You are able to open a SEP and contribute to it until April 18, 2017, to reduce your 2016 tax liability. You can then (at the same time, if you wish), establish a SIMPLE plan for 2017.

You should consult with your financial institution about whether they will require you to use a business account to fund the plan, or if you can use a personal account.

fanfare

Level 15

SEP is the simplest way to go. Administrative overhead : none.

Zbucklyo

Level 8

And just as a side note, you can't contribute 20% of your net income to the SEP - the amount is actually about 18.59%. Make sure you determine the actual maximum before you make your contribution.

https://en.wikipedia.org/wiki/SEP-IRA#Contribution_limits