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Subject:  Re: SEP-IRA limits Date:  2/18/2001  7:53 PM
Author:  ptsurmr Number:  27975 of 88807

Assume a self-employed individual with 170K+ earnings makes the max SEP-IRA contribution of $25,500 (15%). It is my understanding (reading publication 560) that only $22,176.50 (13.0435%) of this amount is deductible. The remaining $3,323.50 is a non-deductible contribution. Is this correct?

For someone who grosses exactly $170,000 in a year that's correct for the deductible contribution. There is no such thing as a nondeductible SEP contribution. Therefore,that person's deductible SEP contribution would be limited to $22,176.50. But for someone who nets $170K or more, the full contribution of $25,500 would be allowed.

I think I follow you, but let me toss out another example just to be sure...

Suppose a self-employed person nets (after all expenses but NOT before self-employment taxes) exactly $195,477.19. Then 13.045% of this (.13045 being the factor to use instead of straight 15%, to account for self-employment taxes due on the "net" income) would be $25,500.

Thus a self-employed person will be eligible to contribute the year 2000 max of $25,500 to a SEP-IRA if and only if they have net profits (excluding self employment taxes) of at least $195,477.19. Is this correct?

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