How Much Can I Contribute To My Sep IRA ?
If you are self employed, you may be wondering how can you contribute to your SEP IRA. First of all, an SEP IRA stands for Simplified Employee Pension IRA. It is a type of traditional IRA to which deductible contributions can be made by the employer. Any distribution or withdrawal from a SEP IRA is subject to the same tax rules as those that are applied to a traditional IRA. |
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This means that any contribution made to a SEP IRA is from pre-tax earned money, and the money will grow in this account tax free until it is withdrawn. The main difference that a SEP IRA has with a traditional IRA is that the contribution made to the SEP IRA is by the employer and not the employee. When we say employer, if a person is self employed, then the contribution will have to be made by the business and not the person himself.
In 2009, the maximum contribution limit to a SEP IRA is $49,000. This amount was $46,000 in 2008. However, there are other rules and regulations that have to be taken into account when it comes to calculation the maximum contribution to a SEP IRA.
For instance, if an employee receives his monthly salary as W2 salary, then the contribution limit is between 0 percent and 25 percent of the W2 income. But this contribution should not exceed the maximum limit of $49,000. So, it is the income of the employee that is taken into consideration and not the income of the business. Usually W2 salary is given by S and C corporations
If the person is running a sole proprietorship, the W2 income is not taken into consideration. Here the person's personal income is viewed and the contribution is 0 percent to 20 percent of the net adjusted personal income. Again, this contribution should not exceed $49,000 per year.
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