topic Traditional IRA contribution limit for self employed in Deductions & credits

Traditional IRA contribution limit for self employed

JQ6 — Wed, 29 Jan 2025 21:23:30 GMT

I am retired (over 65 age) solo self employed and received a 1099-NEC for my service in 2024 tax year. My understanding is I can make a deductible IRA contribution to my existing traditional IRA traditional IRA. I My questions are as follows:

I made ~ $19k in profit after taking all the allowed business expense deductions and taxes. Is there a limit to how much I can contribute to my traditional IRA and take a deduction. Turbotax guided me to the IRA section and showed a max limit of $8k. I just want to make sure:

I can make deductible contribution to my existing IRA account (I do not have traditional SEP or other retirement accounts set up for my business) ?
Is the max limit of $8k correct, because somewhere I read the max contribution cannot be more than 25% of the net profit (perhaps that is if you have a business retirement plan) ?

Thanks for your help.

Re: Traditional IRA contribution limit for self employed

MinhT1 — Wed, 29 Jan 2025 21:32:20 GMT

For 2024, the maximum deduction for a Traditional IRA is $7,000 plus a catch-up of $1,000 for individuals aged 50 or over. See this IRS document.

So TurboTax is correct.

The limit of 25% of income (limited to $69,000 plus a catch-up of $7,500 if aged 50 or over) is for solo 401(k) plan. See this IRS document.

Re: Traditional IRA contribution limit for self employed

VolvoGirl — Wed, 29 Jan 2025 21:37:43 GMT

For an IRA contribution. If you only have self-employment income you can only contribute up to your net profit reduced by the deduction allowed for one-half of your self-employment taxes. See IRS publication 590 http://www.irs.gov/pub/irs-pdf/p590a.pdf

So check 1040 Schedule 1 line 15. You have to deduct that amount from your Schedule C Net Profit. That will give you the allowed contribution for self employment & 1099NEC income.

Re: Traditional IRA contribution limit for self employed

Opus 17 — Wed, 29 Jan 2025 21:53:23 GMT

For a traditional IRA only, your contribution limit is $8000 or your compensation from working, whichever is less. For self-employment, compensation from working is about 92% of your net profit (that's not exactly correct, see the other answers for the exact formula.)

If you wanted to contribute more you would have to open an SEP-IRA.

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps

I don't know the rules and limits as to whether that will work in your situation. I believe, but am not sure, that you can contribute 25% of your compensation to the SEP, and then contribute $8000 to your traditional IRA. In your case that would get you up to about $12,500 in total retirement contributions, if you do the extra work of setting up an SEP-IRA and follow the rules.

Re: Traditional IRA contribution limit for self employed

JQ6 — Wed, 29 Jan 2025 21:58:05 GMT

Thank you for all the responses.

I will check into if I can open a SEP account and contribute the max of 25% and in addition to making an IRA contribution of $8k.

Re: Traditional IRA contribution limit for self employed

dmertz — Thu, 30 Jan 2025 00:10:12 GMT

"I will check into if I can open a SEP account and contribute the max of 25% and in addition to making an IRA contribution of $8k."

There is no restriction against doing that, except that the maximum SEP contribution for someone who is self-employed is 20% of net earnings because the SEP contribution itself is treated as reducing net earnings. With $19,000 of net profit, your net earnings are sufficient to contribute the maximum to both.

If you make a SEP contribution, you are considered to be covered by a workplace retirement plan, so depending on your MAGI for the purpose you might not be able to deduct some or all of your regular traditional IRA contribution.

Also, these contributions reduce net earnings available to be claimed as a self-employed health insurance deduction. If you would be claiming such a deduction, it probably makes sense to allocate to the self-employed health insurance deduction first because this portion would never be taxed instead of being only tax-deferred.

Re: Traditional IRA contribution limit for self employed

reg-dora — Sat, 07 Feb 2026 01:46:07 GMT

You should also check a solo 401K. The allowable contributions are much better than the SEP but I haven't investigated the SEP fully. You should run check calculations. Also use one of the online calculators as a double check.