Author Topic: SEP v SIMPLE IRA Calculator  (Read 292 times)


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SEP v SIMPLE IRA Calculator
« on: June 10, 2018, 12:03:43 PM »
Hi all, thanks for having me.

I've spent some time researching the classic SEP v. SIMPLE for a small business, owned by a married couple, with 1 non-owner employee. I've built a calculator that will decide - quantitatively - for me. Please see the attached.

Even though I am now paying the non-owner employee more money, this is fully offset by the tax savings of the firm's much higher contributions to the SEP v. the SIMPLE.

With salaries of $340k and SIMPLE contributions of 3%, that puts total contributions at $10.2k. With SIMPLE contributions of 25%, that puts total contributions at $85k.
Of the $340k in salaries, $60k is paid to a non-owner. $60k at 3% = $1.8k versus $60k at 25% = $15k. That's a cost increase of $13.2k
Then, total contributions of $85k less $10.2k = $74.8k multiplied by the business's tax rate of 25% = $23.8 in tax savings.

Too, don't forget that the SEP's higher contribution limit allows immediately for more tax-sheltered savings, which is an incremental benefit.

Am I thinking about this the right way?

« Last Edit: June 11, 2018, 06:05:12 PM by Clarice »