Saver's Credit + SEP IRA

[jpdx]

First post!

My spouse and I are self-employed and we each have a SEP IRA account, and we contribute the max contribution -- 20% of our biz profit. Not only does this reduce our federal and state taxes, it also reduces our local business license tax.

I would also like to take advantage of the Saver's Credit this year, but my understanding is this can only apply my personal contributions. So for maximum credit we could each contribute an additional $2,000 to the SEP IRA as personal contributions. Is this correct? Thanks.

[seattlecyclone]

My understanding is that the SEP doesn't allow for "personal" contributions like you describe. This is a major thing that makes them different from solo 401(k)s.

You could however simply open up a regular IRA and contribute up to $5,500 there.

[jpdx]

Ah, got it. Thank you.

We also have Roth IRAs and I was hoping to avoid having a half-dozen retirement accounts!

[terran]

Remember that you can contribute at most $5500 each to any combination of traditional and roth IRA, so you may already have hit that limit. Roth contributions are also eligible for the saver's tax credit, so as long as you each contribute at least $2000 to roth and/or traditional you'll get the maximum credit you're entitled to based on your AGI. If you're close to one of the cutoffs it might make sense to recharacterize some of your roth contributions to traditional to get under the AGI limit. See the 2017 limits here: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit

Also note that the savers tax credit is non-refundable, so it's not actually possible to get the the full 50% credit on a full $2000 each contribution (a $2000 credit) since your tax owed with an AGI under $37k will be less than the $2000 credit.