I was hoping to write about my new SEP IRA account this weekend, but TIAA-CREF hasn’t withdrawn the money from my ING Direct savings account to fund it yet. I would have liked to mention how I’m using the SEP to put some of my 2005 non-salary income away to reduce my tax bill, but I’m holding off until I’m positive the account has been created. They haven’t contacted me to let me know that there is a problem with my application forms, but they haven’t created the account, which should have happened yesterday.
If there’s still no progress on Monday, I’ll call to follow up. The deadline for the account to be created is April 17.
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I’m considering doing the same, but I’m a bit confused. Is it possible to have both a normal IRA and a SEP IRA? If so, can I put the maximum ($4000 for me) in the normal IRA and more in the SEP?
If you are self-employed, you can contribute to your SEP IRA above and beyond the $4,000 limit for Traditional/Roth IRAs. The max seems to be 25% of your Schedule C income. So I maxed out my Roth IRA for 2005, but I’m throwing as much into the SEP IRA as possible. Hopefully I’ll have everything qualified before taxes are due.
Flexo, unlike traditional/Roth IRA, you can contribute to a SEP as late as Oct 15 so long as you file a 1040 extension and fund it “before” you actually file your 1040.
About the maximum SEP contribution, it’s actually 20% of X (X=your Sch C income less 1/2 of SE tax) and let’s call it Y. Or alternatively, 25% of your Sch C income less 1/2 of SE tax less SEP contribution (X less Y).
That’s why a lot of people think it’s 25% of your Sch C income. In a way, yes, but not exactly..
But if your SEP contribution is based on W-2, then it is 25% of your W-2 income.