I just got a new job (it's not a dirty word in the Young Dreamers forum
) as a technical writer. I'll be working as a contractor, so I'll be paying self-employment taxes and contributing to my SEP-IRA (which I already have set up, since a few years ago I did contracting as well). (BTW, I already fully fund a Roth IRA and have no debt of any kind; any money that doesn't make it into the SEP-IRA will go into the taxable investments.)
Anyway... I've been trying to figure out how much I can put into the SEP-IRA and having a bit of a tough time getting the details straight. The IRS publications I read said that I could put up to 25% of my self-employed income into the SEP-IRA. But then it turns around and says that my *deductible* contribution has to be figured with that bizarro-world circular calculation involving how much I paid in self-employment taxes.
So... If I understand this correctly, I can contribute 25% of my income, but when tax time comes, I can only *deduct* the amount yielded by the bizarro calculation? (Meaning that I would have contributed more than I can deduct on my taxes.)
I suppose I could just wait until tax time, let Turbo Tax tell me how much my deductible contribution is and contribute that exact amount, but I don't want to get cheated out of a larger contribution just because I don't understand the ^*!&*! taxes. But I also don't want to over-contribute (if that's what putting in 25% would do) and find the IRS getting mad at me for putting in more than I should.
Oh, and if I *can* contribute more than I can deduct... does that make for any weird tax consequences down the line, when I take distributions? My head will explode if I have to keep track of dollars that went in pre-tax vs. post-tax in my SEP-IRA.
Thanks in advance for any help figuring this out!