Question about SEP and traditional IRA and/or Roth in same year.

[shirlkasper]

I was self-employed for half the year after retiring (age 67) from a traditional job in June.  If I do a SEP and also a traditional IRA,  can the total amount equal no more than $6,500?  My self-employment gross pay was $17,550.  

[shirlkasper]

In other words, I'd like to put $6,500 in the traditional IRA as well as 25% of the SEP income -- and get the bigger deduction, but not sure that is allowed or if it works that way.

[dmertz]

The contribution limit for your SEP-IRA contribution is generally independent of limit for your regular traditional IRA contribution (which should be made to a different IRA account to avoid any confusion about the type of contribution).  Your SEP-IRA contribution reduces your eligible compensation available to contribute to a regular IRA, but it seems likely that you have sufficient compensation to cover a $6,500 IRA contribution after allocating a portion of your net earnings from self-employment to a SEP-IRA contribution.

Whether or not a traditional IRA contribution will be deductible will depend on your modified AGI and your filing status.

[shirlkasper]

Thank you for your help! I'm still confused, though, on whether $6,500 is the limit for ALL contributions (when you combine SEP with the traditional IRA). In other words, can I put $6,500 in a traditional IRA and 25 percent (which would  be about $3,000) in the SEP (for a total of $9,500) or do I have to reduce the traditional IRA by $3,000 to bring the total own to an overall $6,500?

[dmertz]

Any contributions you make to a SEP-IRA do not count against the $6,500 limit for a regular person contribution to an IRA.

Also, be careful how you calculate your SEP-IRA contribution.  For a self-employed individual it requires a special calculation.  The maximum permissible SEP-IRA contribution is 20% of your net earnings from self-employment.  Your net earnings from self-employment are your net profit from self-employment minus the deductible portion of your self-employment taxes (Form 1040 line 27).

With $17,550 of net profit from self-employment and no more than $118,500 of total compensation subject to Social Security tax, your maximum SEP-IRA contribution is $3,262 and your maximum IRA contribution is $6,500

[shirlkasper]

Thank you so much!  I have been driving myself nuts trying to figure this out. If you'll bear with me, I have one other question.  My financial guy put $6,500 in a Roth IRA for me for tax year 2016, which I know means I can't do a traditional IRA, too.  But I need the tax break and want to move that $6,500 out of the Roth before April 18 and put it in a traditional IRA.  Am I allowed to do that?

[dmertz]

Yes, you can request them to recharacterize the Roth IRA contribution to be a traditional IRA contribution instead.  The deadline for completing the recharacterization is the due date of your tax return (including extensions).

[shirlkasper]

Again, thank you.  You have been so helpful. Really appreciate it.  Hope you have a great day.