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How Much Can You Stash Tax-Deferred?

With $100,000 of net self-employment earnings, a SEP-IRA allows up to $25,000 (25% of earnings), far under the 2024 statutory cap of $69,000. At a 22% rate that defers $5,500 of tax this year. A SIMPLE IRA instead caps at $16,000 (2024 employee deferral).

Results

Visualization

Cashbizly provides illustrative business estimates only. Results depend on your inputs and assumptions and are not accounting, tax, or legal advice. Consult a CPA or financial advisor before major decisions. Tax-year figures (mileage, QBI, SEP, etc.) are labelled by year and should be verified at IRS.gov.

How It Works

SEP-IRA max = 25% of net earnings from self-employment (with a reduced-rate computation that yields a 20% of net-profit effective cap), subject to an annual ceiling ($69,000 for 2024). SIMPLE IRA uses an employee elective deferral cap ($16,000 in 2024, plus catch-up at 50+). Both are tax-deferred. Figures are inflation-adjusted; verify the current year's caps at IRS.gov.

What Should You Do?

Scenario 1: earnings of $300k still allow only $69k into a SEP (the cap binds). Scenario 2: a SIMPLE is better for lower earners wanting a fixed deferral. Scenario 3: contributing the max both funds retirement and lowers this year's taxable income.

Frequently Asked Questions

SEP or SIMPLE?

SEP scales with profits (great for variable income); SIMPLE has a fixed employee cap but allows employee deferrals and is simpler with few employees.

Are the caps current?

They change yearly with inflation; the numbers here are 2024 levels — confirm at IRS.gov.

Does contributing reduce SE tax?

SEP contributions are deducted for income tax but not from the SE tax base; the tax deferral is on income tax.

Authoritative References

IRS — SEP Plans — SEP-IRA contribution rules and limits.
IRS — SIMPLE IRA — SIMPLE IRA limits and eligibility.