SEP IRA 20% or 25%

[JeffO]

I was told by my accountant that the maximum contribution I could make as a professional poker player was 20%, because I am considered the employer. However if I were the employee, then I could make a SEP IRA of up to 25%. Can anyone shed some light on this for me. I was always under the impression that I could contribute 25% into a SEP.

Thanks.

[captZEEbo]

sounds like he might be right =/

http://en.wikipedia.org/wiki/SEP_IRA

For self-employed persons, the effective maximum amount that may be set-aside from Schedule C earnings is slightly less than 20% of net earnings from self-employment. For example, if a sole proprietor has $50,000 net earnings from self-employment on Schedule C, then the "1/2 of self-employment tax credit" ($3,532), shown on adjustments to income at the bottom of form 1040, will be deducted from the net earnings and the result is multiplied by 20% to arrive at the maximum SEP deduction. ($9,293) The effective maximum rate of net earnings for self-employed individuals that can be contributed to SEP and deducted is approximately 18.6%. Note that net earnings INCLUDE the proposed deduction for contributions to your own SEP-IRA. In this example, the sole proprietor has therefore $59,293 in net income before his (maximum) SEP-IRA contribution.

The total contribution to a SEP-IRA account is the lesser of 25% of income (20% for self-employed before self-employed tax credit is included) or $42,000 for 2005, $44,000 for 2006; thereafter, the amount is indexed for inflation. Note that contributions may be made to the plan up until the date that the employer's return is due for that year.