I have always thought the maximum contribution percentage of a SEP-IRA is pre-determined by how the plan was set up. But today the financial adviser of a client said the contribution percentage can actually be arbitrarily decided by the taxpayer (sole proprietor) anywhere from 0% to 20%. Is it correct?
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The financial advisor is corrrect. For a SEP IRA, each year stands on its own. The contribution rate can be changed at will - the only requirement is that all eligible individuals be treated the same in any given year. When there is only one eligible individual, it becomes very simple."The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith -
To be technically correct, the maximum plan percentage is actually 25%. (See §404(h)). In the case of a self-employed person, that rate must be reduced in a backward way so that the effective rate does reach a maximum of 20%. (See §404(a)(8)).Originally posted by Questionguy101 View Post
Any plan documents should show the 25% figure. If the stated percentage was 20%, the effective rate would only be 16.67%.Comment
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