Maximum SEP IRA for Sole proprietor
Hi, I have conflicting information on the maximum contribution for a SEP for a sole proprietor in 2023.
The stated maximum contribution is $66,000, but maximum compensation is $330,000. For a sole prop if you calculate the net earnings needed to contribute $66,000, it comes out to $357,407 (357,407 * .9235 * 0.2 = 66,000).
Is the $330,000 maximum compensation considered after the reduction for self employment taxes?
Or effectively, is the maximum SEP contribution for a sole proprietor $60,951? (330,000 * 0.9235 * 0.2) = $60,951.
Thanks!
Permalink Submitted by Alan - IRA critic on Thu, 2024-07-04 15:59
Maximum compensation is defined as the net earnings from SE per Sec 1402(a), which excludes 1/2 of SE tax. Therefore, the 2023 max compensation of 330,000 is after 1/2 of the SE tax has already been excluded. The annual additions limit is always 20% of the max comp or 66,000 for 2023 and 69,000 for 2024.
Permalink Submitted by Michael Frontera on Fri, 2024-07-05 00:12
Thank you!