Is Pausing Contributions to SEP I.R.A.s a Good Move?

“I’m self-employed. Given economic uncertainty around the coronavirus outbreak, should I still make a contribution to my SEP I.R.A.?”

Contributing to a retirement account warrants some caution right now for self-employed people, since they don’t get a regular paycheck.

Self-employed people with SEP I.R.A.s (short for “simplified employee pension individual retirement arrangements”) often make annual contributions at tax time, once they wrap up their tax returns and see how their income shakes out. They can save 25 percent of their earnings, up to certain limits. SEP contributions are tax deductible and can be made up to the tax filing deadline, or later if the taxpayer gets a six-month extension to file.

This year, given the sudden slowdown in economic activity, it might be wise to use a filing extension, postpone a SEP contribution and instead build a reserve for paying bills if needed, said Patrick Healey, a financial planner in Jersey City, N.J.

Mr. Healey said he had a SEP I.R.A. and might just do that himself. “Right now,” he said, “cash is king.”

Later in the year, the economic outlook should be clearer, and you can make a contribution if you feel secure. Check with your tax adviser, though, before deciding.

It’s usually easy to get a six-month filing extension from the Internal Revenue Service by filing a form. Most years, that gives you until Oct. 15 to make a SEP contribution and file your return. (Delayed contributions aren’t generally available with traditional or Roth I.R.A.s.)

A six-month extension allows extra time to file, but doesn’t allow more time to pay. You typically must estimate what you owe and make a payment by the original filing deadline. That’s usually April 15 — but this year, the federal government is moving tax day to July 15.

The I.R.S. must clarify many details about the change, so it’s unclear if filing for an extension will give you a full six months — until Jan. 15, 2021 — to make a SEP contribution and file your 2019 return, or if the Oct. 15 deadline will apply.

“We’ll know more as to how this works as we approach July 15,” said Chris Hesse, chair of the tax executive committee at the American Institute of Certified Public Accountants.

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