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posted Jun 1, 2019 4:48:02 PM

If sep ira max contribution is 25% of net, why, on part III - Detail of maximum allowable deduction ...SEP and Individual 401(k) Plans, does the calc for line 7 = 20%?

have sep ira, am only employee

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1 Best answer
Level 15
Jun 1, 2019 4:48:03 PM

TurboTax does the correct calculation.  Since a SEP contribution is an employer contribution, a SEP contribution effectively reduces your compensation on which the maximum contribution is calculated, so a special calculation must be done.  A 25% base rate results in a maximum SEP contribution of 20% of net earnings from self-employment being the maximum contribution by a self-employed individual.

See IRS Pub 560, Chapter 5:  https://www.irs.gov/pub/irs-pdf/p560.pdf

2 Replies
Level 15
Jun 1, 2019 4:48:03 PM

TurboTax does the correct calculation.  Since a SEP contribution is an employer contribution, a SEP contribution effectively reduces your compensation on which the maximum contribution is calculated, so a special calculation must be done.  A 25% base rate results in a maximum SEP contribution of 20% of net earnings from self-employment being the maximum contribution by a self-employed individual.

See IRS Pub 560, Chapter 5:  https://www.irs.gov/pub/irs-pdf/p560.pdf

Level 2
Jun 1, 2019 4:48:06 PM

The maximum SEP IRA contribution is the smaller of $55,000 or 25% of the participants compensation. Is it perhaps take the smaller amount?