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I mean, given a choice, what do you think is better? I think a self employed person should do both, but fund the ROTH first. So even for 2005, I would fund my ROTH first, then put the rest of the money into a SEP. DH thinks I should do the SEP now for 2004. Shouldn't most self employed individuals always fund a ROTH first?

Am I thinking clearly on this or am I missing something?

You're missing something. I don't think you fully understand what a SEP-IRA is. It is an ordinary IRA with an extra bonus... you get to contribute a percentage of your net self-employment income. Every dollar you contribute from your profit reduces your taxable income and self-employment taxes. So...I would make the employer-side SEP contribution AND make the employee-side contribution (3000/3500 in 2004) as well. The only difference is that the employee-side contribution goes directly to the Roth IRA. If your AGI is low enough, you might consider converting the employer-side contribution to a Roth IRA as well.

Note, if you move both sides of the SEP-IRA contribution to the Roth IRA, you won't be saving anything on income taxes, but you might still be saving some SE tax.

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