IRA question for any tax knowledgeable people

[Jeraden]

I just did a quick estimation of my taxes and I owe a ton of money, so I wanted to expand my IRA contribution for last year. I was doing some research, but it wasn't really clear what I can/can't do, so decided to come here for some advice.

Last year I worked part of the year self-employed, and part of the year employed. While I was employed, I had 20% of my pay deducted and put into an employer-sponsored Keogh plan. I haven't done anything with my self-employed income. That self-employed incoming is literally killing me in taxes, so I want to put as much of it as possible into an IRA to avoid taxes on it.

Now here's where I get confused. It seems there are 3 IRA types. Regular IRA (max contribution 2k/year + 2k/year for spouse = 4k/year), Keogh IRA (25% max, 35k limit), and SEP-IRA (15% max, 25k limit). What are my options for personal contributions? It sounds like I can do 15% of my self-employed incoming into the SEP-IRA and an addition 4k for a regular IRA, without worrying about what money my current employer put into the Keogh. Is that right? Or does what I've had withheld into the Keogh plan limit what I can contribute individually?

The research I've done so far never really says.

 

[glenn1]

If you are offered or are a member of a Keogh plan, that makes you what is called an "active participant" for purposes of determining the allowability/deductability of your IRA contributions. You didn't state whether you're filing singly or jointly, but i'll give you both just in case...

(MAGI = Modified Adjusted Gross Income)


Tax Year / Full deduction allowed for MAGI of / Partial deductability / No deduction for a MAGI of:

Single Filers who are Active Participants Allowable IRA deduction

2001 / $33,000 or less / $33-43k / $43,000 or more
2002 / $34,000 or less / $34-44k / $44,000 or more
2003 / $40,000 or less / $40-50k / $50,000 or more
2004 / $45,000 or less / $45-55k / $55,000 or more
2005 / $50,000 or less / $50-60k / $60,000 or more

Joint Filers who are Active Participants

2001 / $53,000 or less / $53-63k / $63,000 or more
2002 / $54,000 or less / $54-64k / $64,000 or more
2003 / $60,000 or less / $60-70k / $70,000 or more
2004 / $65,000 or less / $65-75k / $75,000 or more
2005 / $70,000 or less / $70-80k / $80,000 or more

Okay, now here's where it gets fun. If you're in that middle category, where your contribution may be partially deductible, here's the formula for determining your deduction amount:

($10,000 - Excess MAGI) x .2 = IRA deduction

* In short, no matter what your income, you can ALWAYS make a contribution to a Traditional (non-Roth) IRA, the contribution simply may not be deductible. If you do make a non-deductible contribution, make sure you file an IRS Form 8606 to report the non-deductible contributions, so you don't double pay your taxes when you begin making distributions from your IRA.

If you want more details on QP's (Qualified Plans... i.e. your Keogh and SEP), just LMK, and i'll go over them as well.

Hope this helps... cheers