1. Home
  2. Taxes General Forum
  3. Maximum SEP IRA contribution for taxpayer who is both employed and self-employed

Maximum SEP IRA contribution for taxpayer who is both employed and self-employed

Suppose T earns $150,000 of W2 income and $150,000 as a self-employed consultant. What is T's maximum SEP IRA contribution for 2010?

The maximum appears to depend on T's self-employment tax, which means the typical calculations given on popular websites for the maximum SEP contribution are incorrect: T's self-employment tax is lower than that of a person who has no W2 income, for T has paid all her Social Security taxes from her wage income. Accordingly, my impression is that the SEP contribution will be larger for T than for, as an example, someone who earns the same amount of SE income but with no wage income.

Thanks for any thoughts.

Reply to
plus
Loading thread data ...

You are confusing the amount that a self-employed individual can contribute (lesser of $49,000 or 25% of compensation) with the amount this individual can deduct on Line 28 of the 1040. The rules you are discussing in your post relate to the deductible amount, not the contribution amount.

Reply to
Alan

Two thoughts in response:

First, are you certain that there is a difference? I'm not clear that contributions to a SEP that are not deductible are permitted; they would seem simply to be excess contributions.

Second, I'm not clear how this addresses the question; in case it matters, I can rephrase the question to refer to the maximum

*deductible* SEP IRA contribution, but the question (I believe) still stands.

Thanks again for any thoughts.

Reply to
plus

Sorry, I was thinking of my self-employed b-i-l who maxes out his SEP_IRA contribution. The max amount is 25% for those who obtain w-2 income from S or C corps and 20% of the net adjusted income for the sole proprietors. If the sole proprietor also has w-2 income that covers FICA, the net adjusted income will be higher than if there was no coverage from w-2 income. Therefore, 20% of a higher net adjusted income makes for a larger contribution when compared to someone who doesn't have w-2 income.

I can not comment on your statement that popular websites are incorrect when calculating maximum contributions as I have no idea which sites you reference.

Reply to
Alan

text -

This is correct. If you have W-2 income, your SEP contribution is larger.

I had precisely this happen to me when preparing my taxes. Using TurboTax, I entered my SEP contribution and also prepared my Schedule C before entering my W-2 income, and TurboTax told me that I had exceeded the maximum SEP contribution. When I entered the W-2, it now told me the amount I had contributed to the SEP was OK.

I don't know what you mean by "The amounts shown on popular websites"

- but indeed, if these "popular websites" don't reflect possible outside income, they would be wrong.

Reply to
Hank Youngerman

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.