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I know that, for all practical purposes, the most that can be contributed to a SEPIRA 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 SEPIRA 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 selfemployed individual with 170K+ earnings makes the max SEPIRA 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 nondeductible contribution. Is this correct?
Alternatively, if the same selfemployed individual were to make a SEPIRA contribution of $22,176.50, this entire amount would be deductible. Is this correct?
Thanks! PtSurMr

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Ptsurmr asks:
Assume a selfemployed individual with 170K+ earnings makes the max SEPIRA 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 nondeductible 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 selfemployed individual were to make a SEPIRA 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 selfemployed individual with 170K+ earnings makes the max SEPIRA 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 nondeductible 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 selfemployed person nets (after all expenses but NOT before selfemployment taxes) exactly $195,477.19. Then 13.045% of this (.13045 being the factor to use instead of straight 15%, to account for selfemployment taxes due on the "net" income) would be $25,500.
Thus a selfemployed person will be eligible to contribute the year 2000 max of $25,500 to a SEPIRA if and only if they have net profits (excluding self employment taxes) of at least $195,477.19. Is this correct?
Thanks! PtSurMr

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PtSurMr asks:
Thus a selfemployed person will be eligible to contribute the year 2000 max of $25,500 to a SEPIRA if and only if they have net profits (excluding self employment taxes) of at least $195,477.19. Is this correct?
Almost. Excluding the selfemployment tax deduction of $6,733, the person must have a net selfemployed 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


