SEP IRA withdrawals
If a client is self employed and deposits $30,000 into his/her SEP, it is a deduction and no social security or medicare taxes are paid….correct? If they withdraw $30,000 from the SEP 6 months later, how is that income treated for tax purposes? Would they have to pay the same 14.3% tax on the $30,000 had they not made a SEP contribution and reported as income?
Permalink Submitted by Jose Morales on Thu, 2015-01-22 21:09
The withdrawal is reported on a 1099-R and included as regular income when filing taxes.
Permalink Submitted by Alan - IRA critic on Thu, 2015-01-22 22:13
Not correct regarding the SE taxes due- the SEP contribution does not affect SE taxes which are due in the same amount whether you made the SEP contribution or not. The SEP contribution does reduce your taxable income however. Therefore, when a SEP distribution is taken out there is no additional SE tax due because they have already paid them. The same is true of a W-2 employee making an IRA contribution in that the FICA taxes due are the same whether the employee makes an IRA contribution or not.