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TMFPixy wrote:
<<You as the employER may make a nonelective contribution of 2% of your compensation as the employEE as late as the due date for filing your return for the year. That contribution is made from the gross receipts of the business and is deducted to arrive at your net compensation for the year.>>

Gack!!! OK, though I use a SEP, I am interested in the SIMPLE as a backup just in case, since I have highly variable income. So I'm going to toss out some numbers, looking to maximize contributions, and lets see what people have to say about them... herein, I'll use SCOTT for me-as-employER, scott for me-as-employEE, and Jen for other-employee-of-SCOTT.

Let's say SCOTT _nets_ $50k this year. So, SCOTT can put %3 of $50k towards scott's SIMPLE, for a total of $1500. Since this comes out SCOTT's taxable net, the contribution itself reduces the earnings use to calculate the contribution, so now SCOTT only nets $48,500. To simplify, I'll just fold it in once and guesstimate things at %3 minus %3 of %3 for the effect on SCOTT's net, resulting in around $1455 that SCOTT can contribute to scott's SIMPLE, and gross income to scott of $48,545. On top of that, scott can contribute $6k of his own income. For a grand total of $7455 for the year.

For a SEP-IRA, SCOTT could have contributed %13.5 (%15 minus %15 of %15 since it's the employER contributing), for a total of $6750, and income to scott of $43,250.

Now, bump SCOTT's net up to $100k, and add an employee Jen who will be paid $50k. With SIMPLE IRAs, SCOTT can contribute the full $1500 (%.03*50000) to Jen's, leaving SCOTT a net of $49,500, of which SCOTT can contribute $1485 towards scott's SIMPLE. scott's income ends up as $47,015. Jen and scott can each contribute a further $6k of their income to their SIMPLE.

In the SEP-IRA case, SCOTT could have contributed $7500 (%.15*50000) to Jen's SEP, leaving SCOTT's net at $43,500. Thus, SCOTT can only contribute $5872.50 to scott's SEP, and scott's income ends up as $37627.50

Wow! Fun stuff! Assuming the numbers were run right, I'm surprised at how competitive the SIMPLE is with the SEP - it looks like about $55k of earnings is where the SEP starts to pull ahead, where I would have thought it would be around $40k. That $6k base is powerful. I'm also starting to see the point about not letting your wife (Jen, in this case :-) do pro bono work for your sole proprietorship.

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