You use your net adjusted self-employment income as compensation when you calculate your SEP contribution limit of 25% of compensation. Here’s the formula to calculate your net adjusted self-employment income:
Determine your gross income
Subtract your business expenses, which include SEP IRA contributions
Subtract half of your self-employment tax
Based on all of that, if you are 34 years old and made $100,000 in 2021, you could contribute up to $18,587 to your SEP IRA.
Here’s what that looks like compared to other self-employed retirement plans using the same income:
Up to $38,087 in a solo 401k
Up to $16,207 in a SIMPLE IRA