Retirement Savings That Can Also Lower This Year's Income Tax
A SEP-IRA contribution isn't just retirement savings — it's a deduction that reduces your taxable income this year, up to 25% of net self-employment income or $70,000 in 2025 ($72,000 in 2026), whichever is lower. It does not reduce self-employment tax, which is calculated on net profit before the retirement deduction applies.
The Math on a Real Example
On $50,000 of net self-employment income, a $10,000 SEP-IRA contribution reduces your taxable income to $40,000 for income-tax purposes — while the money is still yours, growing tax-deferred until retirement.
It Doesn't Reduce Self-Employment Tax Itself
A SEP-IRA contribution lowers your income tax, not your 15.3% self-employment tax — that's calculated on net profit before the retirement deduction applies. Don't expect it to change your quarterly self-employment tax estimate, only your income tax liability.
You Have Until Your Filing Deadline
Unlike a 401(k), which requires contributions by December 31, a SEP-IRA can be funded up until your tax filing deadline (including extensions) — meaning a strong Q4 doesn't have to mean scrambling to contribute before New Year's Eve.