Discussion:IRA and SEP

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Discussion Forum Index --> Tax Questions --> IRA and SEP

Dclearyea (talk|edits) said:

27 March 2006
Can you contribute to both a SEP and IRA at the same time if income so allows?

JR1 (talk|edits) said:

27 March 2006
As long you meet the income limits for someone covered in another plan, yes. You can.

Dclearyea (talk|edits) said:

27 March 2006
Thank you - that's what I thought.

MAPBUSINESS (talk|edits) said:

28 March 2006
same question, client (selfemployed) already contributed 4K to traditional IRA, then, can he contribute to SEP?...could you give me reference (code or publication #), thank you, thank you

Dclearyea (talk|edits) said:

28 March 2006
Yes, as long as the income doesn't phase out the IRA. The contribution is based on the net income of the Schedule C for the SEP, and then the IRA contribution is based on all income (including net income of Schedule C, W2 income, etc.). Pub 590 might be of some help as well.

Jdugancpa (talk|edits) said:

28 March 2006
To clarify for MAPBUSINESS, it is employer dollars going into the SEP contribution. For a self-employed individual, he is his own employer. Once he (as employer) contributes to the SEP he (as employee) is now covered under a retirement plan. At that point the deductibility of the regular IRA is subject to the limits of 219(g).

MIKEB (talk|edits) said:

27 March 2008
If the taxpayer made no SEP contributions in 07 (not deposits to SEP account), I believe he is not "covered by a plan" for 2007 and can contribute $4,000 to a deductible IRA and up to $45,000 to a SEP for 2007, all to be contributed in 2008.

Dusty (talk|edits) said:

28 March 2008

I believe by making the contribution in 2008 for 2007 he is considered covered for 2007.


MIKEB (talk|edits) said:

28 March 2008
Per the W-2 instructions, "covered by a plan" means funds were deposited into your account in the calendar year. See below #7·

Retirement plan. Check this box if the employee was an “active participant” (for any part of the year) in any of the following:

1. A qualified pension, profit-sharing, or stock-bonus plan described in section 401(a) (including a 401(k) plan).

2. An annuity plan described in section 403(a).

3. An annuity contract or custodial account described in section 403(b).

4. A simplified employee pension (SEP) plan described in section 408(k).

5. A SIMPLE retirement account described in section 408(p).

6. A trust described in section 501(c)(18).

7. A plan for federal, state, or local government employees or by an agency or instrumentality thereof (other than a section 457(b) plan). Generally,an employee is an active participant if covered by (a) a defined benefit plan for any tax year that he or she is eligible to participate or (b) a defined contribution plan (for example, a section 401(k) plan) for any tax year that employer or employee contributions (or forfeitures) are added to his or her account'. For additional information on employees who are eligible to participate in a plan, contact your plan administrator. For details on the active participant rules, see Notice 87-16, 1987-1 C.B. 446, Notice 98-49, 1998-2 C.B. 365, section 219(g)(5), and Pub. 590, Individual Retirement Arrangements (IRAs). You can find Notice 98-49 on page 5 of Internal Revenue Bulletin 1998-38 at www.irs.gov/pub/irs-irbs/irb98-38.pdf.

Www.cpa1.biz (talk|edits) said:

5 April 2008

I just wanted to clarify something.

My client and husband are the owners of an Scorp. They make over the income limits to put money into an IRA but are not under any retirement plan except....by reviewing some of these posts, I assuming that the contribution to a SEP plan for the employee(owner) will now constitute that they are under a retirement plan and will not be able to contribute money to a traditional IRA.

Can someone confirm this?



Kevinh5 (talk|edits) said:

5 April 2008
no, you are wrong, www.CPA

they can contribute to an IRA if they have earned income (S corp profit doesn't count), the only question is whether they can deduct it or not.

Www.cpa1.biz (talk|edits) said:

6 April 2008

I understand what you are saying. Yes, the reason I wanted to advise the contribution would be for the deduction. So with my above scenario, would this constitute a nondeduction or a deduction?

Your reply to me sounds like they would be allowed only a nondeductible TRAD IRA.

Is this what you are implying?

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