SEP contribution

[skyler]

Have some extra cash that could go either towards my SEP or towards buying down the rate for the new house we are closing on in March.
CPA finishing taxes for 2013, he called and says if I contribute $3787.00 towards my SEP, I can get a tax bill reduction of $570.
I know it's not dollar for dollar match, but that seems very little tax reduction to me...

[iamlindoro]

That's in instantaneous 15% return, seems pretty good to me!

[MustachianAccountant]

Looks like you're in the 15% tax bracket.

[skyler]

So, the savings % is the equivalent of the tax bracket for a SEP?
Assume would be the same for the solo 401k and a traditional IRA?

[MustachianAccountant]

So, the savings % is the equivalent of the tax bracket for a SEP?
Assume would be the same for the solo 401k and a traditional IRA?

Yup. Contributing to a pre-tax retirement account "removes" that money from being taxed. So, it works pretty much like a deduction. (Instead, that retirement money is taxed when it is taken out of the account.)
So, (generally speaking) your tax savings on contributions is whatever your tax bracket percentage is.
Not sure where the accountant came up with $3787... for this small amount, why is an SEP being recommended over a Trad IRA?

[skyler]

I have a traditional IRA (maxed it out for 2013).

Last year I opened a SEP with Vanguard.

The $3787 is what's left, according to the accountant,  to max out my SEP (already contributed some $$ in the beginning of last year).