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  • Questionguy101
    Senior Member
    • Jan 2007
    • 423

    #1

    Sep-ira

    Taxpayer has a 25% SEP IRA contribution plan.

    His 2010 self-employment income is $20,000. So the maximum SEP-IRA contribution is $4,704.

    If the taxpayer has already contributed $5,000 to his traditional IRA, does it mean he cannot make any more contribution to his SEP-IRA?
  • Roland Slugg
    Senior Member
    • Aug 2006
    • 1860

    #2
    If I'm not mistaken, his SEP contribution limit is $4,000. Where did you come up with $4,704?

    His traditional IRA contribution may be limited in the same way that any other person's IRA deduction is limited if he is covered by another retirement plan, including a SEP. If his IRA contribution is reduced or eliminated by the phase-out rules, he can still make it, but it will be a non-deductible contribution. If that happens, a Roth IRA would be a better option ... if he qualifies for a Roth IRA and isn't denied one because his income exceeds THAT limit.
    Roland Slugg
    "I do what I can."

    Comment

    • Questionguy101
      Senior Member
      • Jan 2007
      • 423

      #3
      Originally posted by Roland Slugg
      If I'm not mistaken, his SEP contribution limit is $4,000. Where did you come up with $4,704?

      His traditional IRA contribution may be limited in the same way that any other person's IRA deduction is limited if he is covered by another retirement plan, including a SEP. If his IRA contribution is reduced or eliminated by the phase-out rules, he can still make it, but it will be a non-deductible contribution. If that happens, a Roth IRA would be a better option ... if he qualifies for a Roth IRA and isn't denied one because his income exceeds THAT limit.
      How did you come up with $4,000?

      I used a 25% contribution plan worksheet to do the calculation and the result is $4,704.

      Comment

      • Kram BergGold
        Senior Member
        • Jun 2006
        • 2112

        #4
        The correct answer

        The maximum SEP on a self employed person's 20,000 net is $3,717. It is different when you are figuring for an employee. I confirmed this in my software.

        Comment

        • Burke
          Senior Member
          • Jan 2008
          • 7068

          #5
          I just did it in my head, and I get the same thing. $20,000 X .9235 X .153 divided by 2 and then subtracted from $20,000 X .20% = $3,718.

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