Wage Income

• You can only contribute to a traditional IRA if you have earned income like wages. You cannot contribute unearned income like dividends, capital gains and interest to your traditional IRA. As long as you have sufficient income to cover your contribution, you can make put the maximum into your traditional IRA and still contribute to your SEP-IRA.
  
  

Self-Employment Income

• You can contribute to a SEP-IRA if you have income from a small business you own, or if you have income from self-employment. If you have income from self-employment, you should receive a 1099-MISC form from each client for whom you did at least $600 worth of work in the past year. But even if you do not receive a 1099-MISC form, you are required to report all self-employment income you received to the IRS. Keeping accurate records is essential for any self-employed individual or business owner, since you need to report your income accurately when you complete your tax return. Keeping accurate records of your income also makes it easier to determine your maximum SEP-IRA contribution.
  
  

Traditional IRA Limits

• The IRS reviews the contribution limits for traditional IRA accounts each year and adjusts them as needed. For 2011, the maximum you can contribute to your traditional IRA is $5,000. If you are at least 50 years of age, you can contribute an extra $1,000, for a total of $6,000. In order to make that maximum contribution, you must have wage income of at least that amount.
  
  

SEP-IRA Calculator

• The amount you can contribute to a SEP-IRA is determined by the total amount of your business or self-employment income. The easiest way to determine how much you can contribute to a SEP-IRA in any given year is to use a SEP-IRA calculator (see Resources). You can also ask your financial adviser or tax professional to help you determine your maximum SEP-IRA contribution. Since the maximum SEP-IRA contribution is determined by your business or self-employment income, you need to wait until you have all your yearly figures before you finalize your SEP-IRA for the year.