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I know that, for all practical purposes, the most that can be contributed to a SEP-IRA for tax year 2000 is $25,500. What is the maximum for tax year 2001?

Thanks.

David

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Greetings, David, and welcome. You asked:

*I know that, for all practical purposes, the most that can be contributed to a SEP-IRA for tax year 2000 is $25,500. What is the maximum for tax year 2001?*

The SEP compensation cap hasn't changed from the $170,000 effective in 2000. Therefore, the maximum dollar limit for contributions remains $25,500. That works out to 15% of the $170K compensation cap.

Regards..Pixy

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TMFPixy writes:

*The SEP compensation cap hasn't changed from the $170,000 effective in 2000. Therefore, the maximum dollar limit for contributions remains $25,500. That works out to 15% of the $170K compensation cap.*

Pixy,

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?

Alternatively, if the same self-employed individual were to make a SEP-IRA contribution of $22,176.50, this entire amount would be deductible. Is this correct?

Thanks!

PtSurMr

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Ptsurmr asks:

*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.

*Alternatively, if the same self-employed individual were to make a SEP-IRA contribution of $22,176.50, this entire amount would be deductible. Is this correct?*

That's correct given the person **grosses** the $170K exactly.

Regards..Pixy

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ptsurmr:

*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?*

TMFPixy:

**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?

Thanks!

PtSurMr

No. of Recommendations: 1

PtSurMr asks:

*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?*

Almost. Excluding the self-employment tax deduction of $6,733, the person must have a net self-employed income of not quite $195,500. That would then produce an allowable contribution of $25,500 assuming the plan contribution rate was 15%. See the worksheet on page 52 of IRS Publication 590 for details.

Regards..Pixy