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Sep Contributions Past Age 70 1/2

Discussions relating to Drug Laws

Sep Contributions Past Age 70 1/2

Postby Colyer » Thu Dec 01, 2016 9:09 pm

s About Taxes)/SEP contributions past age 70 1/2 Advertisement Expert: Helen P. O`Planick, EA - 4/28/2008 Helen,

I have received conflicting answers about this.

My Enrolled Agent tax preparer has a family emergency and I am filing on my usual extension. Otherwise I would ask her.

I am a consultant engineer. Annual net pre tax business income is in the low 6 figures. I am sole proprietor, not incorporated. I live in Texas which has no state income tax. My tax deferred savings plan is with a Simplified Employee Pension plan(SEP)and I contribute the maximum amount each year. I also have some rolled over 401ks' that have not been contributed to since the rollover. I have a pension from a past employer. I have mutual fund, interest and farm or royalty income. I am single.

In 2008 I will be 70 1/2 so must begin taking withdrawals. I know the amount I must take. I must also begin drawing Social Security, I have been paying for Medicare by bank withdrawal. I want to continue working but but all of the above plus business income will certainly put me into the dreaded Alternative Minimum Tax(AMT) if I cannot make contributions to the SEP.

I have been told by one investment advisor that I cannot make contributions to a tax deferred plan at the same time I am taking taxable withdrawals. This makes sense to me. I have been told by another that I can make contributions to a tax deferred plan based on my business income only, report all other as taxable and the total tax liability would be reduced by the amount of the SEP contribution on net pre tax business income. This also makes sense to me.

Which is it? It is the American way to shelter income. If I can't do it I will just have to join the ranks of the retired and unemployed.

Thanks,

Carl

ANSWER: First of all, Carl, income does not put you into AMT, expenses do.  

But you cannot put money into a SEP once you are 70.5 as a SEP is an IRA.  

You can, however, put money into a solo 401K and that may be where you want to go looking at.  You can also roll your money from your SEP into the 401K and then you will not have to take withdrawals at the age of 70.5.

Good luck,

Helen, EA in PA

---------- FOLLOW-UP ----------

Thanks for the prompt answer Helen. Would you please clarify how expenses can apply to AMT in my case. If my business expenses and income are the same as before but I have increased my total income by adding Social Security and SEP distributions would that not have the same effect as reduced expenses? Are Social Security and SEP distributions not used in calculating AMT? My personal deductions are not likely to change, my health should remain unchanged and I am not looking into buying/mortgaging my home just to gain an interest deduction.

The rollover into a solo 401K sounds good. In my mind I had thought an SEP was the sole proprietors version of the 401K plan and that the only choices I had was a Keogh plan or an SEP. My SEP is in three different investments and by rolling two into a solo 401K I could reduce the amount of distributions.

ANSWER: No, SS and SEPs do not cause AMT or stop AMT.  AMT is a tax if you don't pay enough taxes by taking extra deductions.  

The SEP is the OLD solo 401K.  Solo's are allowed only in the past few years.

Helen, EA in PA

---------- FOLLOW-UP ----------

OK, I understand.

When Charlotte gets back from leave I must talk to her because I think I have had it as I never have any deductions to amount to anything, taking the standard deduction only.

My medical insurance is provided as part of a pension from a former employer and as my health is excellent I have zero drug and small medical expense. I have no mortgage, only ad valorum taxes and Texas has no income tax.

Now I am more concerned about my tax bill skyrocketing than I am about AMT!

Since I want to keep working, moving one of my SEPs' seems to be the answer.

Thanks, Carl  
Colyer
 
Posts: 35
Joined: Tue Jan 14, 2014 1:35 pm

Sep Contributions Past Age 70 1/2

Postby Brody » Thu Dec 01, 2016 10:33 pm

Carl, if you have been taking the standard deduction, I doubt you have seen AMT rear that ugly head.  

And remember, no one has gone to the poor house by making money, we are still not in a 100% tax country, no matter what it seems.

I don't know the start dates etc on the solo 401Ks, so please don't do delay in checking on this.  

Helen, EA in PA
Brody
 
Posts: 55
Joined: Wed Feb 05, 2014 5:28 am

Sep Contributions Past Age 70 1/2

Postby mardel » Sat Dec 03, 2016 6:55 am

s About Taxes)/SEP contributions past age 70 1/2 Advertisement Expert: Helen P. O`Planick, EA - 4/28/2008 Helen,

I have received conflicting answers about this.

My Enrolled Agent tax preparer has a family emergency and I am filing on my usual extension. Otherwise I would ask her.

I am a consultant engineer. Annual net pre tax business income is in the low 6 figures. I am sole proprietor, not incorporated. I live in Texas which has no state income tax. My tax deferred savings plan is with a Simplified Employee Pension plan(SEP)and I contribute the maximum amount each year. I also have some rolled over 401ks' that have not been contributed to since the rollover. I have a pension from a past employer. I have mutual fund, interest and farm or royalty income. I am single.

In 2008 I will be 70 1/2 so must begin taking withdrawals. I know the amount I must take. I must also begin drawing Social Security, I have been paying for Medicare by bank withdrawal. I want to continue working but but all of the above plus business income will certainly put me into the dreaded Alternative Minimum Tax(AMT) if I cannot make contributions to the SEP.

I have been told by one investment advisor that I cannot make contributions to a tax deferred plan at the same time I am taking taxable withdrawals. This makes sense to me. I have been told by another that I can make contributions to a tax deferred plan based on my business income only, report all other as taxable and the total tax liability would be reduced by the amount of the SEP contribution on net pre tax business income. This also makes sense to me.

Which is it? It is the American way to shelter income. If I can't do it I will just have to join the ranks of the retired and unemployed.

Thanks,

Carl

ANSWER: First of all, Carl, income does not put you into AMT, expenses do.  

But you cannot put money into a SEP once you are 70.5 as a SEP is an IRA.  

You can, however, put money into a solo 401K and that may be where you want to go looking at.  You can also roll your money from your SEP into the 401K and then you will not have to take withdrawals at the age of 70.5.

Good luck,

Helen, EA in PA

---------- FOLLOW-UP ----------

Thanks for the prompt answer Helen. Would you please clarify how expenses can apply to AMT in my case. If my business expenses and income are the same as before but I have increased my total income by adding Social Security and SEP distributions would that not have the same effect as reduced expenses? Are Social Security and SEP distributions not used in calculating AMT? My personal deductions are not likely to change, my health should remain unchanged and I am not looking into buying/mortgaging my home just to gain an interest deduction.

The rollover into a solo 401K sounds good. In my mind I had thought an SEP was the sole proprietors version of the 401K plan and that the only choices I had was a Keogh plan or an SEP. My SEP is in three different investments and by rolling two into a solo 401K I could reduce the amount of distributions.

ANSWER: No, SS and SEPs do not cause AMT or stop AMT.  AMT is a tax if you don't pay enough taxes by taking extra deductions.  

The SEP is the OLD solo 401K.  Solo's are allowed only in the past few years.

Helen, EA in PA

---------- FOLLOW-UP ----------

OK, I understand.

When Charlotte gets back from leave I must talk to her because I think I have had it as I never have any deductions to amount to anything, taking the standard deduction only.

My medical insurance is provided as part of a pension from a former employer and as my health is excellent I have zero drug and small medical expense. I have no mortgage, only ad valorum taxes and Texas has no income tax.

Now I am more concerned about my tax bill skyrocketing than I am about AMT!

Since I want to keep working, moving one of my SEPs' seems to be the answer.

Thanks, Carl  
mardel
 
Posts: 47
Joined: Wed Dec 11, 2013 6:42 am


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