how much to contribute to a SEP IRA

[krishan]

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OK
so for 2006 i made enough to make the max contribution
Due to the neteller fiasco ruining my fish farms (I was never a great poker player to start with) Ill be lucky if I make 17 dollars this year.
So even if I didnt wanna save the money for 50 years I could max out my sep ira,k convert it to a roll ira withdraw it in late 2007 and pay my 2007 tax rate on it (which will be a joke) and not have to pay a penatly?

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I think so.

[DespotInExile]

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...but you can't touch them until you are 59.5, without a 10% penalty. Isn't this a pretty significant downside?

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Believe it or not, unless you plan on dying early, most of us are going to make it to age 59 1/2, and when you do, you're going to need money to spend. Obviously, dont tie up short term money into an illiquid account, but assuming you have sufficient short term liquidity, you should always maximize your tax deferred vehicles.

[jively]

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assuming 45K is possible I think the tax benefits of sheltering that money is pretty hard to beat. I contributed the max I could the past two years.

Krishan

[/ QUOTE ]this is true. ira's are sick investment tools, and not taking advantage of them is often a mistake imo.

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...but you can't touch them until you are 59.5, without a 10% penalty. Isn't this a pretty significant downside?

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If you need some of the money you can roll it into a roth penalty free.

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I'm pretty sure this is not correct. First, when you roll the IRA to a Roth, you pay ordinary income tax on it. Second, you still can not take out your money on the amount rolled over or the gains until you are 59 1/2 without the 10% penalty.

-Tom

Edit: It actually looks like according to this article there is no penalty, but you have to convert and then wait 5 years.

[stoxtrader]

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I must be missing something.

http://www.irs.gov/retirement/article/0,,id=111419,00.html

"Is there a deadline to set up a SEP?

A SEP can be set up for a year as late as the due date (including extensions) of the business’s income tax return for that year."

"What is the timeframe for depositing contributions into SEP-IRAs?

Contributions for a year must be deposited by the due date (including extensions) for filing your Federal income tax return for the year."

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I think I must be wrong. My financial advisor told me the same thing about needing to have the account open by end of year and then having until tax date to fund it. Strange.

Krishan

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My CPA still also insists I can't contribute for 2006 but I got conflicting information from ameritrade where my brokerage acct is and from my own irs.gov research here

[I.Rowboat]

According to my CPA, you can open and fund a SEP IRA up to the due date of your tax payment, including extensions. In 2005 I filed an extension, and opened and funded my SEP IRA about a week before the tax due date in October. FWIW, my CPA is also my brother-in-law, and he wouldn't have given me this advice if there was any question of its legality or compliance.

[zimmer879]

Stox,

I've looked everywhere and can't find anything that supports your CPA's claim. Send him the link to the IRS's page on SEPs and ask him what he thinks. Also tell him that different retirement plans have different contribution deadlines (Keogh is Dec.31) and suggest that he might be mixing them up.

[stoxtrader]

thanks for the replies guys, appreciate it.

[mo42nyy]

just got done with my taxes and didnt actually reach the max to contribute
Two quick questions:

Fidelity has a a calculator here to determine how much I can put into the sep:
http://personal.fidelity.com/global/...tion=sep%20ira

For net business profits I should use the number from line 31 of the schedule c correct?

Can poker players who are self employed contribute 20% or 25% max?
Thanks

[BradleyT]

SEP IRA Contribution Limits
A SEP IRA owner may contribute up to 25% of an employee's compensation up to the annual compensation cap. The annual compensation cap in 2006 is $220,000 and $225,000 for 2007 and then subject to annual cost-of-living adjustments for later years. The maximum dollar amount that may be contributed in 2006 is $44,000 ($45,000 in 2007 and then subject to annual cost-of-living adjustments for later years).

[TheMetetron]

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SEP IRA Contribution Limits
A SEP IRA owner may contribute up to 25% of an employee's compensation up to the annual compensation cap. The annual compensation cap in 2006 is $220,000 and $225,000 for 2007 and then subject to annual cost-of-living adjustments for later years. The maximum dollar amount that may be contributed in 2006 is $44,000 ($45,000 in 2007 and then subject to annual cost-of-living adjustments for later years).

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That's incorrect. There is a self-employed persons worksheet that the IRS puts out that is a bit different. It's usually around 20% - 1/2 of self-employment tax but not exactly.