SEP IRA tax savings

TAXRETURNS44
TAXRETURNS44 Member Posts: 1 Newcomer
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Should I invest $10,000 in my SEP IRA, what effect would it have on my declared income for the year? How is the calculation made?

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  • cdkirchn22
    cdkirchn22 Member Posts: 22 Level 5
    Answer ✓

    Any contribution to your SEP IRA would be limited to 25% of your compensation for the year or a minimum of $40,000 in self-employed income. Your taxable income would be reduced by $10,000, in this example, and the tax savings would be approximately $10,000 times the marginal rate your taxable income falls into (i.e. $1,200 tax savings in the 12% bracket).

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