Two Korean-American consultants can report the exact same $95,000 in US 1099 income and still end up roughly $5,500 apart on their SEP-IRA contribution room. The gap isn’t a mistake on either return. It’s whether one of them remembers to fold in the consulting fee a Seoul-based client wired over in won.
That gap is the part most guides on SEP-IRAs skip entirely. They explain the 20-25% contribution formula and move on, as if every self-employed reader only has one US-based income stream. A lot of Korean immigrant consultants don’t. They bill a domestic client on a 1099, and they also invoice a Korean company for advisory work, paid in KRW straight into a Korean bank account. Both streams count toward the same SEP-IRA. Here’s how to combine them correctly, and where people leave money on the table.
How a SEP-IRA Works for the Self-Employed
A SEP-IRA lets a self-employed person set aside a share of net self-employment income, fully tax-deductible. For a sole proprietor, the math works out to roughly 20% of net earnings, after subtracting the deduction for half of your self-employment tax. Run the business as an S-corp paying yourself a W-2 salary, and the formula is cleaner: up to 25% of that salary. Either path is capped each year at the IRS’s annual SEP dollar limit. Check the IRS’s SEP plan overview for the current cap before you finalize a number.
Eligibility is simple, too. Any self-employed person qualifies, sole proprietor, partnership, or S-corp owner. There’s no minimum income threshold, and you don’t need another retirement plan in place first.
None of that is complicated on its own. The complication shows up once your self-employment income isn’t all coming from one country.
Why a Korean Client Complicates the SEP-IRA Math
Here’s the assumption that trips people up. A lot of self-employed Koreans treat their Korean-sourced consulting income as separate from their “real” 1099 business. It isn’t. If you’re a US tax resident, meaning a green card holder, a citizen, or someone who passes the Substantial Presence Test, your worldwide income gets taxed the same way. That includes self-employment tax on a consulting fee from Seoul.
The client’s location doesn’t matter. What matters is that you performed the work, and that you’re a US tax resident when you earned it. A nonresident alien on F-1 status who hasn’t yet passed the Substantial Presence Test is often exempt from self-employment tax altogether, which is a different situation. But for most consultants working full-time in this country, the Korean invoice is just as taxable, and just as countable toward your SEP-IRA base, as the US one.
Skip that Korean income when you calculate your contribution limit, and you’re not avoiding anything. You’re just leaving retirement contribution room on the table.
Converting Your Won-Denominated Fee to USD
Before you can add the Korean income to your SEP-IRA base, you need a clean USD figure. The IRS generally wants you to convert foreign income using the exchange rate on the date you received it. If your Korean consulting income arrives in a few payments across the year, you can instead use a consistent method, like the IRS yearly average exchange rate for that currency, applied the same way every year.
Use the rate from the day the wire actually lands, not the invoice date. A consulting fee invoiced in March and paid in June should be converted at the June rate. Keep the wire confirmation or bank statement showing the rate your bank actually used. That’s your backup if the IRS ever asks how you got your number.
A Worked Example: Combining US and Korean Income
Take a UX consultant with $95,000 in net self-employment income from US clients, all on 1099s. She also advises a Seoul-based startup, invoicing ₩40,000,000 for the year, wired directly to her account. At an exchange rate of roughly 1,350 won per dollar, that fee converts to about $29,600.
Combined, her net self-employment earnings come to about $124,600. Subtract the deduction for half of her self-employment tax, roughly $8,800 on that combined figure, and her SEP-IRA base lands around $115,800. Twenty percent of that is close to $23,150, still subject to the IRS’s annual dollar cap.
Now compare that to what she’d get using only the US income. On $95,000 alone, the same formula produces a base of about $88,290, and a contribution of roughly $17,650. The Korean fee alone adds close to $5,500 in tax-deductible contribution room. Leave it out of the calculation, and that room simply disappears. It doesn’t roll over. It doesn’t come back next year.
SEP-IRA vs Solo 401(k) With Foreign Income in the Mix
A Solo 401(k) usually wins at lower combined income, because it adds an employee deferral on top of the same employer-style contribution a SEP-IRA offers. That employee deferral is a flat dollar limit, and it doesn’t change based on where your income comes from. The employer-side piece still scales off your combined net earnings, US and Korean, calculated the same way as a SEP-IRA.
A SEP-IRA still wins on simplicity. There’s no plan document, and no Form 5500-EZ filing once the account stays under the reporting threshold. That advantage doesn’t change just because part of your income is foreign. What does change is the size of the number you’re running the math on, and skipping the Korean piece shrinks it for either account.
Documenting and Opening the Account Before the Deadline
A SEP-IRA can be opened and funded any time up until your tax filing deadline, including extensions. That gives you months after year-end to gather your Korean invoices, confirm the exchange rates you used, and calculate a final contribution figure. A Solo 401(k) doesn’t offer that flexibility. The account itself has to exist by December 31.
Keep a simple log of every foreign payment: the date, the KRW amount, the USD conversion, and the source of the exchange rate. For background on how self-employment tax gets calculated in the first place, our Schedule SE breakdown covers the underlying formula this whole calculation depends on. Schwab, Fidelity, and Vanguard all offer SEP-IRAs with no setup fee, and the account itself takes about fifteen minutes to open online.
What Readers Ask
Do I owe self-employment tax on the Korean side of my income at all?
Generally, yes, if you’re a US tax resident when you earn it. The tax follows your residency status and where the work was performed, not where the client is headquartered. A tax treaty doesn’t exempt self-employment tax the way it sometimes reduces income tax withholding.
What exchange rate should I use to convert the won I received?
Use the rate on the date you actually received the payment. If your Korean income comes in steadily throughout the year, a consistent yearly average rate is also acceptable, as long as you apply it the same way every year.
Does my SEP-IRA contribution change if the exchange rate moves before I file?
No. Once you’ve converted the income for the year it was received, that dollar figure is fixed. A later swing in the won doesn’t retroactively change your SEP-IRA base or your contribution limit for that year.
Can I also pay into Korea’s National Pension and skip US self-employment tax?
Sometimes, depending on your situation. A US-Korea totalization agreement exists to prevent double coverage on the same income, but claiming it generally requires a certificate of coverage from Korea’s National Pension Service. This is a case worth running by a cross-border CPA before you assume either way.
This is general information, not a substitute for advice from a CPA or financial advisor. Every situation is a little different, and the contribution rules described here can change without much notice.