A self-employed client's immediate tax effect of opening a SEP-IRA is?

The immediate tax effect of opening a SEP-IRA for a self-employed client primarily results in tax reduction. When a self-employed individual contributes to a SEP-IRA, those contributions are made pre-tax. This means that the individual's taxable income for the year is effectively reduced by the amount contributed to the SEP-IRA.

For example, if a self-employed person earns $100,000 in a year and contributes $10,000 to their SEP-IRA, their taxable income would be reported as $90,000 for that tax year. This reduction in taxable income can lead to lower overall income tax liability, providing immediate tax benefits for the individual.

While tax deferment is a related concept, it applies to the timing of when taxes are paid on income and earnings within the account. However, the focus here is on the immediate effect of the contribution, which is a reduction in taxable income. Thus, the correct understanding hinges on the fact that contributions to the SEP-IRA allow the individual to pay less in taxes currently due to the lowering of their taxable income.