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Old 01-25-2006, 06:30 AM
kristinecfp kristinecfp is offline
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Default Re: Reducing the Self-employment tax

The SEP contribution limit is based on your wages once you're incorporated. Here's an example of how it will work.

Your SCorp makes $100,000 profit, you decide to pay yourself wages of $60,000/yr, or $5000/mo. When you write your paycheck each month you will withhold your own SEP contribution, which can be up to 25% of your wages, or $1250/mo. Your SCorp will then match your SEP contribution, but only up to the company match designated in the plan when setup (usually 3% of wages). Your company match in this case would be $150/mo. In this example you would put $15,000 in your SEP for the year, with a company match of $1800.

I mentioned that you could put a maximum of $42,000 in a SEP IRA in an earlier post. You would need to have $168,000 of wages to be able to do that, since you can't contribute more than 25% of your wages to the SEP.

If you need more examples check out this article at Investopedia: http://www.investopedia.com/universi...ra/sepira2.asp
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