SEP IRA and 401K contribution household wage criteria?

Forum|Forum|7 years ago
June 6, 2019
19 replies
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Is there any limit based on the household income to contribute to SEP IRA(Sole Prop.) , Spouse 401 K(18K), Different employer 401k (18K) during the same year?Scenario: Sole Prop Profit 80K, W2 Self income 60K, W2 spouse Income 90 K. Maximize deduction goal= (80/ 4)=20k+18K+18K

Best answer by Zbucklyo

If you are a sole proprietor, the contribution limits are confusing in your situation because your total earned income will be over the social security wage base for 2017 ($127,200). However, the general rule is that the maximum contribution for a sole proprietor is 20% of net profit reduced by half self-employment tax (The 25% limit applies to employees, and many people mistakenly use that, instead of 20%). If you were under the wage base, the maximum contribution you can make is approximately 18.59% of your net profit. It may be slightly more than that in your case.

See IRS Publication 590 for worksheets to calculate your maximum SEP-IRA contribution.

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SEPIRAUSERAuthor

Level 2

I hope Dmertz is right but need some confirmation. As this will help me put money in my SEP correctly. I will not put anything to my SEP if it's not going to impact on my deduction. Also what's the last date on putting funds to my SEP. I have already opened one account before Oct 1 deadline but have not put any money. Is there any website where I can pretend filing taxes and see it myself if it's allowing me or not do double sure.

dmertz

Level 15

A SEP IRA contribution for 2016 can only be made after April 18, 2017 if by April 18, 2017 you submitted a request for filing extension.

SEPIRAUSERAuthor

Level 2

I am referring to year 2017 . so I can make my appropriate contribution by April, Right? Dmertz , are you a CPA by profession?

Critter

Level 15

You will need to wait until you complete your return to fully fund the SEP so you should not try to maximize the contribution until then to avoid over contributing.

dmertz

Level 15

The deadline for making a SEP IRA contribution for 2017 is the due date of your 2017 tax return. That's April 17, 2018 if you do not request a filing extension or October 15, 2018 if you do request a filing extension.

dmertz

Level 15

I am not a CPA. I make it a point to know the code and regulations because I and my family have many retirement accounts and I've encountered many representatives of financial institutions who don't know these things.

dmertz

Level 15

The October 1 deadline is the deadline for establishing a SIMPLE plan, not a SEP plan. It makes no sense in this case to have a SIMPLE plan rather than a SEP plan. Since the individual elective deferral limit of $18k is already maxed out with the 401(k) elective deferrals, no elective deferrals would be permitted to a SIMPLE plan. Contributions to a SIMPLE plan would be limited to a 2%-of-compensation employer contribution.

ZbucklyoAnswer

Level 8

See IRS Publication 590 for worksheets to calculate your maximum SEP-IRA contribution.

Critter

Level 15

How much can I contribute to my SEP?

The contributions you make to each employee’s SEP-IRA each year cannot exceed the lesser of:

25% of compensation, or
$54,000 for 2017 ($53,000 for 2015 and 2016 and subject to annual cost-of-living adjustments for later years).

These limits apply to contributions you make for your employees to all defined contribution plans, which includes SEPs. Compensation up to $270,000 in 2017 ($265,000 in 2015 and 2016 and subject to cost-of-living adjustments for later years) of an employee’s compensation may be considered. If you're self-employed, use a special calculation to determine contributions for yourself.

Contributions must be made in cash; you cannot contribute property.

If you’ve contributed more than the annual limits to your SEP plan, find out how to correct this mistake.