My client is 74 years old. This year (2017) she will have net schedule C income of $40,000. She has no qualified retirement plan or IRA. Can she contribute to a SEP this year? Is her limitation 25% of schedule C net income. Or is it effectively 20% if the deduction is computed as a schedule C deduction?
There will not be an RMD for 2017 since there was no 12/31/2016 balance. RMDs on the SEP balance will start in 2018.
The maximum SEP contribution would be 20% of net earnings from self-employment. Net earnings from self-employment are net profit from self-employment minus ½ of self-employment taxes. With exactly $40,000 of net profit and no W-2 income which would cause one to max out Social Security wage base limit, the maximum SEP IRA contribution would be $7,434.82, 18.587% of net profit.
Permalink Submitted by David Bennett on Tue, 2017-10-31 19:29
I believe she can contribute. It’s effectively 20% as you said. The question is, as this is a type of IRA, does she have an RMD?