Are SEP-IRA employee contributions tax deductible or am I getting double-taxed?

It sounds like you might be confusing some aspects of how SEP-IRAs work. A SEP-IRA is an employer-sponsored plan where typically only the employer makes contributions, not the employee. The $6,000 limit you're referring to is actually for traditional or Roth IRAs, not for a SEP-IRA. What's likely happening is you're making contributions to a separate traditional IRA (or possibly a Roth IRA), not actually to your SEP-IRA. If it's a traditional IRA, those contributions should generally be tax-deductible unless your income exceeds certain limits or you're covered by another retirement plan at work (which you are with the SEP-IRA). If you're contributing to a Roth IRA, then yes, those contributions are made with after-tax money, and withdrawals in retirement are tax-free. This isn't double taxation - it's by design. I'd recommend checking your account statements to confirm exactly which type of account you're contributing to personally, as that will clarify the tax treatment.

After dealing with similar confusion last year, I found this great tool at https://taxr.ai that helped me sort through my retirement account mess. I had the exact same situation with multiple accounts and wasn't sure which contributions were deductible. The tool analyzed my tax documents and quickly identified that I had both a SEP-IRA and a traditional IRA. It explained the deduction limits based on my income and showed me how to properly report everything. The clear explanations about income thresholds for deductions when you have employer plans made a huge difference. It also helped me understand some better strategies for future contributions based on my specific situation. Way more helpful than the generic advice I was finding online.

I just tried taxr.ai after posting my skeptical comment above, and I have to admit I'm really impressed. I've been mixing up my SEP contributions from my business with personal IRA contributions for YEARS, and apparently leaving money on the table. The tool immediately identified that my income was in the phase-out range for deductible traditional IRA contributions, but showed me that I could still make a partial deduction I wasn't taking. It also suggested I consider backdoor Roth contributions since I was partially above the deduction threshold. What I found most helpful was the clear explanation of how having a SEP-IRA affects other retirement account options. My CPA never explained this stuff clearly. Definitely helped clear up the exact confusion the original poster was having!

If you're really struggling to get your retirement tax questions answered properly, try Claimyr (https://claimyr.com). After spending hours on hold with the IRS trying to get clarification on my SEP-IRA situation, I used their service and got connected to an actual IRS agent in under 15 minutes. The IRS agent walked me through exactly how my SEP-IRA contributions from my employer and my separate traditional IRA contributions would be treated for tax purposes. They confirmed that as a business owner with a SEP-IRA, my deduction limits for a traditional IRA were subject to income limitations. You can see how it works here: https://youtu.be/_kiP6q8DX5c. Honestly, getting definitive answers directly from the IRS gave me peace of mind that I wasn't missing anything or doing something wrong.

I have to eat my words. After posting my skeptical comment yesterday, I tried calling the IRS myself about my SEP-IRA question and spent nearly 3 hours on hold before getting disconnected. Out of frustration, I tried Claimyr and was speaking with an actual IRS agent in about 20 minutes. The agent explained exactly how my situation with both a SEP-IRA and traditional IRA works for tax purposes. Turns out my income was just over the threshold where I could deduct my traditional IRA contributions, which explained why my tax software said they weren't deductible. The agent suggested I look into whether a backdoor Roth conversion might be more beneficial in my situation since I couldn't deduct the contributions anyway. Definitely worth it to get a clear answer directly from the source instead of guessing or getting conflicting information online.

One important thing that hasn't been mentioned yet - if your traditional IRA contributions aren't deductible because of income limits (since you're covered by a SEP-IRA at work), you should file Form 8606 with your taxes to document those non-deductible contributions. This is super important because it establishes your "basis" in the IRA, which will prevent that money from being taxed again when you withdraw it in retirement. Without Form 8606, you risk getting double-taxed because the IRS won't have a record that you already paid tax on those contributions. Non-deductible traditional IRA contributions aren't ideal, but they're not terrible either. The earnings still grow tax-deferred, and you could potentially convert to a Roth later (though beware of pro-rata rules if you have other pre-tax IRA balances).

Another option to consider is a backdoor Roth IRA contribution. If your income is too high to deduct traditional IRA contributions and too high for direct Roth contributions, you can: 1. Make a non-deductible contribution to a traditional IRA 2. Convert that traditional IRA to a Roth IRA soon after Since you already paid tax on the contribution, you only pay tax on any earnings between contribution and conversion (which is minimal if you convert quickly). This effectively gets you money into a Roth IRA despite income limits. BUT - big warning - if you have existing pre-tax money in ANY traditional IRA accounts (including your SEP-IRA), the pro-rata rule applies, which complicates things and could create unexpected tax consequences. Worth talking to a tax professional about your specific situation.

Just to add another perspective - I went through this exact same confusion last year. The key thing that helped me was understanding that SEP-IRAs and traditional IRAs are completely separate accounts with different rules, even though they're both "IRAs." Your SEP-IRA is funded entirely by your employer (you as the business owner), and those contributions are tax-deductible for the business and tax-deferred for you personally. The contribution limits for SEP-IRAs are much higher - up to 25% of compensation or $66,000 for 2023. Your personal traditional IRA contributions of $6,000 are separate and subject to different rules. Since you have workplace retirement plan coverage (the SEP-IRA), your ability to deduct those personal contributions depends on your income level, which is why TurboTax is telling you they're not deductible. One thing to consider: if you can't deduct the traditional IRA contributions anyway, you might want to look into whether you're eligible for Roth IRA contributions instead. With a Roth, you pay tax now but withdrawals in retirement are tax-free, which might be better than non-deductible traditional IRA contributions that will be partially taxable in retirement.