A client is a W-2 employee at a commercial real estate firm making $200,000 per year and is participating in the company 401k plan (she maxed out the 401k and there is no matching). The company just paid her a year end bonus of $185,000, but they paid it to her as an independent contractor and thus will be issuing her a 1099 and she will now have to file a Schedule C for the $185,000. For 2007, she will receive W-2 income and 1099 income from the same employer.

Is she permitted to establish a SEP IRA since she will now have to file a Schedule C for this 1099 income? If she can, can she contribute the full 20% of the $185,000?

Thank you!