How Much Can You Contribute to a Roth IRA & SEP Plan?
The Roth IRA and the Simplified Employee Pension (SEP) plan are significantly different examples of individual retirement accounts. Although both accounts focus on saving for retirement and both provide tax advantages for contributions, each is different in structure, requirements and administration. One major difference relates to how much you can contribute.
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Roth IRA Facts
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A Roth IRA is an account you set up yourself, and you have control over the types of investments you include. Although there are no age restrictions on setting up a Roth IRA, there are income limitations. As of 2011, you are not eligible to contribute to a Roth IRA if you file as single or head of household or as a qualifying widow or widower and your modified adjusted gross income (MAGI) is more than $122,000. In addition, you cannot contribute to a Roth IRA if you file as married filing jointly and your MAGI is over $179,000 or if you file as married filing separately and your MAGI is over $10,000.
Roth IRA Maximum Contribution Requirements
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The maximum contribution you can make to a Roth IRA in one year depends on your age, tax filing status and income level. As of 2011, the maximum yearly contribution is $5,000 if you are under the age of 50 and $6,000 if you are age 50 or older. You qualify to make the maximum contribution if you file as single or head of household or as a qualifying widow or widower and your modified adjusted gross income is less than $169,000. You also qualify if you file as married filing jointly and your MAGI is less than $107,000 or if you file as married filing separately and your MAGI amount to zero. If your income is above these limits, the IRS reduces your maximum contribution according to your MAGI. Consult with your tax attorney or complete the set of worksheets the IRS provides in Publication 590 to determine how much you can contribute.
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SEP Plan Facts
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The SEP plan is a retirement plan an employer of any size can offer as part of your benefit package. You also can set up your own SEP plan if you are self-employed. With the SEP plan, your employer contributes to the plan. Because this is a fully vested plan, once your employer contributes, the money is yours. Therefore, if you leave your job the day after a contribution posts to your account, the money is yours to leave with your former employer or roll into another account. Although your employer makes the actual contribution, in most cases, he allows you to select investments from options he provides.
SEP Plan Maximum Contribution Limits
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As of 2011, the maximum annual contribution your employer can make to your SEP plan is 25 percent of your wage compensation up to a maximum of $49,000. Whatever contribution percentage your employer decides must be the same for each employee. As a result, while the amount of each contribution may vary, the percentage is the same.
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