Self-Employed SEP, SIMPLE, and Qualified Plans

Self-employed taxpayers, including small business owners and partners, may be entitled to a deduction1 related to particular retirement plans. More specifically, savings incentive match plans for employees2 (SIMPLE) and simplified employee pensions (SEP) are two common plans that qualify under this Form 1040, Line 28 deduction. Additionally, some 401(k) accounts may qualify.

Publication 560 provides information regarding which retirement plans are most appropriate for small business owners to establish and maintain (for the owner and/or his/her employees). It also explains how business owners should treat distributions, how much to contribute to a plan (and how much is deductible), which information must be reported to the IRS and any employees under the plan(s), and much more. As a general rule, all contributions made by a small business owner to either his personal plan or on behalf of his/her employees are eligible for the Line 28 income tax deduction. That being said, this deduction is somewhat complicated and taxpayers who believe they may be able to take or utilize this deduction should read Publication 560 thoroughly and consult a tax professional.

1This deduction is not necessarily relevant to small business employees. Retirement plan tax information that may be of interest to employees (small business or otherwise) can be found elsewhere, including: our IRA distributions page and/or Publication 590 (for comprehensive IRA rules), our Pensions and Annuities page and/or Publication 575 (for pension and annuity distributions), and Publication 571 (for tax-sheltered 403(b) plans).
2SIMPLE plans can take the form of a 401(k) or an individual retirement account (IRA)

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