How much can I contribute to my SEP account?

April 28, 2003

Subject:  SEP-IRA
From:  J.
Date:  Sun, 2 Mar 2003

Dear Mr. Gray,

I saw on the internet where you had helped someone with a SEP-IRA question. I am at my wits end looking for an answer to my question. I am an un-incorporated, sole proprietor. I have no employees. I have a SEP-IRA. I have $100,000 in income. I would like to contribute 25% ($25,000) into my SEP-IRA.

I looked at the worksheet from the IRS to calculate my deduction. It looks like I am only able to deduct 20% ($20,000). I was wondering if I am approaching this correctly. And, how do I address the remaining 5% ($5,000) of my contribution?

I have looked at so many websites that say you can contribute anywhere from 15-25% and that you can deduct anything in that range. Even the IRS's website doesn't seem to provide any definitive answer. Any assistance you can provide would be greatly appreciated.

Thank you,
J.

Answer

Date:  04 Apr 2003

The SEP contribution and the deductible 1/2 of your self-employment tax are both subtracted from your other self-employment income to determine your maximum SEP contribution. Rough and dirty, $100,000 - $20,000 = $80,000 X 25% = $20,000.

Good luck!
Mike Gray

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