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Case Study:

With $100k Of Self-Employment Income

What Are My Main Retirement Contribution Options?

Individual 401(k), SIMPLE IRA or SEP-IRA.

*Earned Income = Net Profit – 1/2 of Self-Employment Tax – Contribution

Summary Table

Determine Amount of Contribution
Type of business Sole Prop/Partner
Tax year 2025
1. Determine the Amount of Self-employment Tax
A) Enter net business profit (from Schedule C, C-EZ, or K-1) $100,000
B) Multiply amount in Line A by .9235 $92,350
C) Enter 12.4% (Social Security) of Line B, but not more than $21,836 $11,451
D) Enter 2.9% (Medicare) of Line B $2,678
E) Add Lines C and D for your total self-employment tax $14,130
2. Determine Adjusted Net Business Profit
F) Divide Line E by 2 for your self-employment tax deduction $7,065
G) Subtract Line F from Line A $92,935
3. Contribution Factor and Adjusted Earned Income
H) Maximum contribution percentage 25.00%
I) Add 1.00 to H to determine contribution factor 1.25
J) Divide Line G by Line I to determine Adjusted Earned Income (not to exceed $350,000) $74,348
4. Determine Maximum Profit Sharing Contribution for 401(k) and SEP
K) For corporations, multiply Line G by Line H. Others multiply Line J by Line H (not to exceed $70,000) $18,587
5. Determine Maximum Self-Employed 401(k) Contribution
L) Enter maximum employee 401(k) contribution available $23,500
M) Add Line K and Line L $42,087
N) Choose the lesser of Line M and $70,000 $42,087
O) Enter maximum 401(k) catchup, if applicable $0
P) Add Line N and Line O to determine the Maximum Self-Employed 401(k) Contribution $42,087
6. Determine Maximum SEP Contribution
Q) Maximum SEP Contribution is equal to the Maximum Profit-Sharing Contribution (not to exceed $70,000) $18,587
7. Determine Maximum SIMPLE IRA Contribution
R) Enter maximum SIMPLE IRA deferral $16,500
S) Enter maxmium SIMPLE IRA catchup, if available $0
T) Add Line R and Line S for total employee SIMPLE IRA contribution $16,500
U) Determine maximum SIMPLE IRA matching contribution (lesser of Line T and 3.0% of Line B) $2,770
V) Add Line T and Line U to determine the Maximum Simple IRA Contribution $19,270

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Remember,

“If We Aren’t Working For You, Then You Aren’t Working At Your Best”

Chris Whalen, CPA
(732) 673-0510
81 Oak Hill Road
Red Bank, NJ 07701
www.chriswhalencpa.com

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