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Posted by Phil Marti on July 19, 2008, 7:13 pm
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> Help!! I've asked my accountant and two other CPAs (including an EA!)
> these questions, and no one seems to be able to give me an internally
> consistent answer about this:
>
> I work for a small corporation (two of us) which offers an SEP
> retirement plan. I make no voluntary contributions, but the employer
> contributes the maximum (25%) of our compensation. This year, i expect
> that the employer's contribution will reach the contribution limit of
> $46,000.
>
> I also have a self-proprietership consulting business for which I am
> considering setting up a SIMPLE IRA.
>
> Am I permitted to make > employee contributions < to the SIMPLE IRA up
> to the $10,500 limit assuming that I am going to reach the 2008 SEP
> limit? My understanding is that the $46,000 limit is collectively for
> all EMPLOYER contributions to defined contribution plans, and since i
> make no employee contributions to the SEP (or to any other plan), I
> should be able to contribute through employee contrributions up to the
> SIMPLE IRA limit.
You are wrong. The employer limit is per plan, not per person over all the
employers (including himself) he works for. For the SEP the corporation is
the employer. For the proposed SIMPLE you are the employer. What happens
in the SEP doesn't affect what happens in the SIMPLE, and vice versa. See
Publication 560.
> If I set up a 401(k), can i contribute the maximum employee amount of
> up to $15,500 for the consulting business?
Yes. That's "you," the employee. "You," the employer can also make
additional profit-sharing contributions. Again, Pub 560.
> There appears to be no income limit for deduction of the employee
> SIMPLE IRA contributions under the regular tax. Do the AMT
> calculations negate or reduce the deduction in any way?
No
In addition to all the above, you the individual can make an IRA
contribution in the full amount allowed, assuming you're under 70 1/2.
Deductibility of traditional IRA contributions is subject to the AGI
phaseouts since you're covered by a retirement plan at work. That's Pub
590.
--
Phil Marti
Clarksburg, MD
--
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