Message Font: Serif | Sans-Serif
 
No. of Recommendations: 2
January 11 - $1000 deposited in Traditional IRA
February 15 - started a sole proprietorship
March 19 - SEP opened
March 19 - $1111 ($1000 plus earnings) transferred in from Traditional to SEP
April - $2.00 dividend transferred from Traditional to SEP
(Traditional is now zeroed out.)


If I understand your facts, your advisors are all full of beans. Let me restate the facts as I understand them. (A misunderstanding of the facts could well lead to wrong answers.)

I assume that all dates are in 2002 and IRA transactions are for tax year 2002. I'm also going to assume that you have at least $1,000 in taxable compensation for 2002.

So far all you've done is made a $1,000 traditional IRA contribution for 2002. You can make $2,000 more ($2,500 if you're 50) in traditional IRA contributions for 2002 plus 13.something percent of your net income from self-employment as a SEP contribution, as long as you have the taxable compensation to support the contributions.

You mentioned Roths in a way that leaves me less than convinced that you fully understand them. Your combined total of traditional and Roth IRA contributions for tax year 2002 cannot exceed the aforementioned $3,000 ($3,500). SEP coverage doesn't affect your ability to contribute to Roth and traditional IRAs, but it does make deductibility of traditional IRA contributions subject to the AGI phaseouts.

I have no idea why you opened a separate SEP account. I just make my SEP contributions to my existing traditional IRA.

I suggest some reading in IRS Publications 560 and 590 and the FAQ's, with a followup if something doesn't make sense.

Phil Marti
Print the post  

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement