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Can I Deduct My SEP-IRA Contributions?

Posted By Jim On 02/20/2007 @ 12:00 pm In Business,Personal Finance,Retirement,Taxes | 19 Comments

This was a question posed to me by a recent reader:

Hi Jim,
I see that you’ve written a lot about sep-ira’s and I had a question I hoped you could answer, I was going to make a contribution to my sep-ira, can I deduct that on my taxes?


The answer is yes but where you deduct it will depend on your situation.

Self-Employed Persons
If you are self-employed, you can contribute to an SEP-IRA as either an employer or an employee. When you contribute to the SEP-IRA as an employer, you can deduct that contribution but you deduct it from your business/self-employment income. If you contribute to the SEP-IRA as an employee, you can deduct that contribution from your own income.

Not Self-Employed Persons
If you work for a business that offers a SEP-IRA, you’re going to be contributing as an employee and subject to the rules of a Traditional IRA. So, again you will be able to deduct the contribution but you will be deducting it against your own income.

So to recap, if you are a self employed and contributing as an employer, you deduct it against your business’ income (you are still subject to self employment tax). If you are self-employed and contributing as an employee or you are not self-employed, you deduct it from your own taxes.

Anyone want to add anything? (or fix something I may have gotten wrong?)

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