Self-employed: SEP IRA, Traditional IRA, and/or SIMPLE IRA?

[lange17]

My wife is self-employed. I am not. We want to maximize our retirement contributions. TurboTax doesn't seem to know which of these options to tell me to do. It guided me to a $19,500 max contributions to the traditional IRA. I had to search for where to enter a SEP and/or a SIMPLE. When I found it, it guided me to a 25% of my wife's income SEP contribution, and let me put whatever number I wanted for SIMPLE.

I asked the live help CPA, and he was completely lost.

Can anybody help me?  I'm assuming I can't really do all three of these, but which ones can I do? In whose name(s) do I do them? And for how much?

Thanks in advance for anyone who can help!

[LudwigVan_fan]

There are a number of factors that need to be known and considered.  You say you are not self-employed, but are you an employee covered by a retirement plan?  That may be a factor.  As to contributing or deducting an amount, a plan has to be in place.  Not just selecting something in TT.

Here is a like to IRS.  On this page are other links as well as answers to some questions.

https://www.irs.gov/retirement-plans/individual-retirement-arrangements-iras

https://www.irs.gov/publications/p560

https://www.irs.gov/publications/p590a

Hopefully that will provide help to your situation.

[lange17]

Thanks for the response! I am not covered by a retirement plan. I have a traditional IRA in place and my wife has a SEP IRA in place. Of course, I'd be happy to set up additional plans if needed.

I'll look at the links provided. Honestly, I thought Turbo Tax would ask me those questions and then give me answers instead of leaving it to me to figure out from confusing IRS publicaitons! But thank you for the info - I'd love any more that you or anyone else could give!

[LudwigVan_fan]

SEP plan limits

Your contributions to your SEP plan (that is not a SARSEP) are not reduced by the contributions you or your employer make to your employer's SIMPLE IRA plan.

SEP plans (that are not SARSEPs) only allow employer contributions. For a self-employed individual, contributions are limited to 25% of your net earnings from self-employment (not including contributions for yourself), up to $61,000 for 2022 ($58,000 for 2021; $57,000 for 2020). You can calculate your plan contributions using the tables and worksheets in Publication 560.

For 2022, 2021, 2020 and 2019, the total contributions you make each year to all of your traditional IRAs  and Roth IRAs can't be more than:

• $6,000 ($7,000 if you're age 50 or older), or
• If less, your taxable compensation for the year
•  

So, based on your question it would appear that you could contribute up to $6,000 (or $7K if over 50) to your combined IRAs as long as you have at least that amount in earned income.

Your spouse can contribute up to 25% of her net earnings from self-employment from the trade or business the SEP IRA is set up for. From Pub 560

https://www.irs.gov/pub/irs-pdf/p560.pdf

Deduction Limit for
Self-Employed Individuals
If you make contributions for yourself, you need
to make a special computation to figure your
maximum deduction for these contributions.
Compensation is your net earnings from
self-employment, defined in chapter 1. This definition takes into account both the following
items.
• The deduction for the deductible part of
your self-employment tax.
• The deduction for contributions on your behalf to the plan.
The deduction for your own contributions
and your net earnings depend on each other.
For this reason, you determine the deduction
for your own contributions indirectly by reducing
the contribution rate called for in your plan. To
do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 6. Then, figure your maximum
deduction by using the Deduction Worksheet
for Self-Employed in chapter 6