SEP-IRA Schedule C

Technical topics regarding tax preparation.
#1
CathysTaxes  
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I finally got off my butt and set up a SEP IRA. I'm a Schedule C and the only person who works it.

I'm trying to do my contribution for 2022. I've already did the max for my Traditional IRA.

For the SEP:

Is my contribution considered ''Prior Year Employer''? If I select individual, it tells me I've already hit max for Traditional IRA.

Thanks
Cathy
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#2
JR1  
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Seems backwards to me. Once you hit your SEP, you're now covered....which would limit your IRA. (Now, since they're both considered IRA's for tax purposes, likely no harm other than just having IRA remarked as a SEP just to keep it straight.)

So try deleting your IRA for now, go for max SEP and see where you land.
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#3
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My SEP contribution is lower than the Traditional IRA.
Cathy
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#4
JR1  
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Well, once you're at the max....you're at the max!
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#5
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Bringing this back up again because I've been doing research.

Per publication 560, the sole proprietor is treated as its own employer. Sep contributions would be reorted on line 15, Schedule 1.

I've also read that contributions to a SEP IRA does not impact contributions to a Traditional IRA. My tax software is allowing both contributions.

So back to my financial institution's online portal, I probably have to select 'Employer contribution' to get passed their message.
Cathy
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#6
JR1  
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Depends on your income. When you're covered in a retirement plan, your IRA amounts may be limited.
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#7
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JR1 wrote:Depends on your income. When you're covered in a retirement plan, your IRA amounts may be limited.

I've been having problems finding this. Do you have a publication or link you can share?
Cathy
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#8
sjrcpa  
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It follows the basic rules. The SEP is considered an employer plan.
So follow the rules for IRA contributions when you are covered by an employer plan. In the 1040 instructions which may refer you to a Pub.
 

#9
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I've also read that contributions to a SEP IRA does not impact contributions to a Traditional IRA.

Not true. See Post #2, second sentence.

My tax software is allowing both contributions.

Probably because your under the phase-out limit.
 

#10
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Jeff-Ohio wrote:
I've also read that contributions to a SEP IRA does not impact contributions to a Traditional IRA.

Not true. See Post #2, second sentence.

My tax software is allowing both contributions.

Probably because your under the phase-out limit.

Makes sense.
Cathy
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#11
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CathysTaxes wrote:I've also read that contributions to a SEP IRA does not impact contributions to a Traditional IRA. My tax software is allowing both contributions.


Keep in mind that you can always contribute to a Traditional IRA. The question is whether it is deductible. At a certain income limit, it is not.
~Captcook
 

#12
JR1  
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A way to see it would be to play a minute. Create a dummy W2 if you don't have another, with minimal income, check the retirement box and then see what happens to your IRA.
Go Blackhawks! Go Pack Go!
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#13
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JR1 wrote:A way to see it would be to play a minute. Create a dummy W2 if you don't have another, with minimal income, check the retirement box and then see what happens to your IRA.

I can do that
Cathy
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#14
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JR1 wrote:A way to see it would be to play a minute. Create a dummy W2 if you don't have another, with minimal income, check the retirement box and then see what happens to your IRA.

So Jeff, this is weird. I created a dummy W2 for $5000 in wages with the retirement box checked and it still calculated $7000 for IRA AND the SEP.
Cathy
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#15
JR1  
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Then you're good to go. You're under the income limits so you can do both.

Now, go make more money! lol
Go Blackhawks! Go Pack Go!
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#16
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JR1 wrote:Then you're good to go. You're under the income limits so you can do both.

Now, go make more money! lol

Thanks JR. Now I have to get my financial institution to allow me to do it!
Cathy
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#17
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CathysTaxes wrote:I've also read that contributions to a SEP IRA does not impact contributions to a Traditional IRA. My tax software is allowing both contributions.


As I understand it, you are setting up a SEP for 2022 and funding the SEP in 2023. For the 2022 tax year, regardless of how much you fund the SEP, you are not considered an active participant in a plan at work for 2022 for purposes of whether you can make a deductible contribution to your IRA pursuant to IRC Reg 1.219.2(d).

"(d) Profit-sharing and stock-bonus plans - (1) In general. This paragraph applies to profit-sharing and stock bonus plans. An individual is an active participant in such plans in a taxable year if a forfeiture is allocated to his account as of a date in such taxable year. An individual is also an active participant in a taxable year in such plans if an employer contribution is added to the participant's account in such taxable year. A contribution is added to a participant's account as of the later of the following two dates: the date the contribution is made or the date as of which it is allocated. Thus, if a contribution is made in an individual's taxable year 2 and allocated as of a date in individual's taxable year 1, the later of the relevant dates is the date the contribution is made. Consequently, the individual is an active participant in year 2 but not in year 1 as a result of that contribution."
 

#18
JR1  
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WTF? That makes no sense whatsoever!!
Go Blackhawks! Go Pack Go!
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#19
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I know. It's counterintuitive.
 

#20
JR1  
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It's just stupid! lol Ah, tax laws passed by people who've not worked in the world.....
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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