If you’re self-employed, understanding the difference between employer and individual retirement contributions isn’t just a technicality—it can have a real impact on your taxes. In this article, I break down how SEP IRAs and Traditional or Roth IRAs work together, the common mistakes I see, and how to avoid missing out on a valuable deduction.

🧾 Solo Business Owners: Don’t Miss This SEP + IRA Strategy

The 2024 tax season may be over—but smart 2025 planning starts now.

If you’re self-employed, there’s a common mix-up I see far too often:

Someone contributes to a SEP IRA, but does it as an individual instead of as the employer.
That small mistake can mean losing out on a big tax deduction.

✅ Here’s what you can do in 2025:

Contribute to your SEP IRA — as the employer:
• Up to $70,000 or 25% of eligible compensation
• If you’re self-employed, your real limit is closer to 20% of your net income
(after subtracting half your self-employment tax and the SEP contribution itself)

Contribute to your personal IRA — as the individual:
• $7,000 if you’re under 50
• $8,000 if you’re 50+
• Use a Traditional IRA to reduce your taxable income (if under deductible income limits)
• Or a Roth IRA for tax-free growth later (if you qualify)
• Or contribute some to both, as long as you stay within the $7,000 (or $8,000) limit

👉 Yes—you can contribute to your SEP IRA and your individual retirement accounts. Using both can give you more ways to save and lower your tax bill.

📌 A few reminders:
• Traditional IRA deductions phase out at higher income levels. Depending on your income, you can still make a contribution, but it may not be tax deductible.
• Roth eligibility also phases out at higher income levels.
• Roth earnings are only tax-free after 5 years.
(The five-year clock starts January 1 of the year of your first Roth contribution.)

👉 You can check the current income phase-out limits here:Retirement Plan Limits for 2025 and 2024

⚠️ What goes wrong?
People mix up the roles.

Even if you’re the same person, your business and you are separate when it comes to contributions.

If you send your SEP contribution from a personal account—or label it wrong—the custodian might treat it like a regular IRA contribution. That can wipe out your employer deduction and cap your total contribution at just $7K–$8K.

I helped a client fix a similar mix-up, but only because we caught it before the tax filing deadline. If you’re not sure everything’s set up the right way, it’s worth a quick check with your tax pro or advisor.

📂 Maxed out both your SEP and IRA?

Look into a Solo 401(k).
You’ll get the same employer contribution option, plus you can defer up to $23,000 (plus catch-ups if you’re 50+).
That flexibility can make it easier to boost your savings as your earnings grow.

🧠 The bottom line:
If you’re self-employed, you wear two hats.
Use them both—and label them right—so you don’t leave money on the table.