SEP-IRA contribution

[NotEasy]

Taxpayer has a W-2 income of $30,000 in 2010. His employer does not provide a pension plan in this job.

He also had $50,000 of self-employment income in another job in 2010.

He has a SEP-IRA for his retirement contribution.

Is the maximum contribution of his SEP-IRA based on $80,000 (which is the total of
his W-2 income and his self-employment income)?

[Lion]

Employer

It's my understanding (you'll want to track this back to the code before you rely upon it) that the SEP is set up/contibuted to by the employer. In an SE situation, your client is both the employer and employee for retirement plan purposes. However, for his W-2 wages he is NOT his own employer. Under the usual conditions, he could make a traditional or Roth IRA contribution based on his wages as an employee.

[JohnH]

I think his maximum SEP contribution is based only on his Self-Employment income. He can make this contribution any time before the filing date of his return, including extended due date.

If he were filing before Apr 15, he could also contribute to a regular IRA, but he would have to limit the deductibility of the IRA contrbution because the SEP makes him "covered by a retirement plan" even though his employer does'nt offer one.

[ChEAr$]

Still, may he also fund a ROTH IRA given the fact that his SEP IRA is also funded by his employer (himself?)

My employer (solely owned S corporation) contributes to my IRA via the SEP established by the corporation, and then I also contribute the maximum to my ROTH IRA.

[Lion]

Deadlin

Wasn't the deadline for Roth contributions 15 April? Yes, if done before that and he meets the requirements, he can contribute to his own IRA, traditional or Roth.

[joanmcq]

Slightly different take

I have a solo 401(k). I haven't filed my return yet. Can I still make a 2010 'ee or 'er contribution (the plan has a provision for contributions both as the employer and employee)?

[Kram BergGold]

Yes

I solo 401 k gets the same treatment as a SEP, Money Purchase, or Profit Sharing Plan.

[joanmcq]

Yay! Now I just need to find the funds for it.....

[ChEAr$]

Yay! Now I just need to find the funds for it.....

AND..... only if the return is properly under extension. (grin!

[joanmcq]

Yes, it is under extension.....

I'm just pissed because I finally turned 50, and have every year up til now contributed the max to my IRA and or Roth, plus some 401(k) contributions. This year I could do more except I'm really frikkin broke.

Hey, is the zero % tax rate still in effect for capital gains? I could harvest gains from a taxable investment account I've had forever, and put some into my 401(k). ****, should have thought of this before April 15; could have put some in the IRA as well.

[ChEAr$]

Hey, is the zero % tax rate still in effect for capital gains? I could harvest gains from a taxable investment account I've had forever, and put some into my 401(k). ****, should have thought of this before April 15; could have put some in the IRA as well.

Ah so! Tax planning at it's finest. Use the capital gains tax rates while they're still with us.
(Maybe not long, either)

A client once wanted to transfer his IRA into an IRA for his wife. Could he do it? Hmmmm..
sure, I said. Here's how.

Even though he was still working, he was over 59 1/2 so no penalty for early withdrawal.
His wife also worked and neither were under current retirement plan.

So he withdrew 6,000 , gave it to wife who then deposited in her IRA. Taxable to him, deductible to her, zero effect on the 1040. And that effectively transferred money to her in case he died. (versus his children who were IRA beneficiaries getting it.)

[joanmcq]

Actually, I'm thinking of harvesting all of my gains if I can get away with it, and then just buy back into the same mutual fund. No wash sale rules if a gain! Then I have a higher basis, and pay no tax on the gains. might as well do it while my income is low...

[okie1tax]

Capital Gains

Joan, are you sure you want to join the "millionaires and billionaires" club?

[ChEAr$]

Joan, are you sure you want to join the "millionaires and billionaires" club?

She's hoping for an invitation to Omaha.
grin

[joanmcq]

I'm far from the 'millionaires & billionaires' club! But I might as well take advantage of being income-poor/asset not-so-poor right now. Not to mention having a decent grasp of tax planning! Now I gotta just remember this strategy for the IRA for 2011 (and hope I don't need the funds if my booming tax biz doesn't boom as much as I need it to)