Can I Claim SEP-IRA / Solo 401(k) Contributions as a Business Expense in United States?
Yes — SEP-IRA and Solo 401(k) contributions are fully deductible. SEP-IRA: up to 25% of compensation, max $69,000 (2024) / $70,000 (2025). Solo 401(k) allows up to $69,000 plus $7,500 catch-up (age 50+) — often higher than SEP at modest incomes due to the employee deferral.
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What Internal Revenue Service (IRS) says
IRC Section 408(k) governs SEP-IRA; Section 401(k) plus Section 415(c) cap at $69,000 (2024) for Solo 401(k). Contributions are deductible against business income; growth is tax-deferred. Distributions in retirement are taxed as ordinary income.
When you can claim
- SEP-IRA: 25% of net SE earnings (after 1/2 SE tax adjustment), up to $69,000
- Solo 401(k): $23,000 employee deferral (2024) + 25% employer × profit, up to $69,000 combined
- Catch-up: extra $7,500 if age 50+ (Solo 401(k))
- Roth Solo 401(k) — same limits, after-tax (no deduction but tax-free growth)
When you cannot claim
- Contributions exceeding the annual cap
- Contributions exceeding 25% of compensation
- Late deposits (general SEP deadline = tax filing deadline + extension)
Good to know
Pro tip: For owner-only businesses, Solo 401(k) usually beats SEP-IRA by allowing the $23k employee deferral on top of the 25% employer contribution. At $80k net SE income, Solo 401(k) lets you contribute ~$43,000 vs ~$15,000 in SEP.
Related expenses
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