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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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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