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Returning Member
posted Jan 13, 2022 7:37:03 AM

IRA SEP Contribution limitation when i have a 401k plan with my employer

I have funded my 401k plan with my employer to the maximum allowed ($26k) and also have an IRA SEP for my self employment income. I would like contribute the maximum to my IRA SEP of $58,000 which i can do because of the level of Self Employment Income I have. Can i contribute the full $58,000 in addition to my $26k to my 401k plan or am I limited to $58k overall? TurboTax is telling me I can do both but some advisors say I can only contribute max when having the program calculate the maximum allowed.

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6 Replies
Expert Alumni
Jan 13, 2022 9:15:07 AM

Assuming that the 401k and SEP IRA are with two different companies not under common control, your contributions  to a SEP plan are not reduced by contributions to the 401(k) plan.

 

 

 

Returning Member
Jan 13, 2022 10:02:21 AM

Thank you. Could you point me to a reg or statue that would show me this? I need to tell my advisor so he can understand the rules better. Thanks

Level 5
Jan 13, 2022 12:45:23 PM

Might want to find a new advisor.  Here are a couple of articles.

 

https://windgatewealth.com/two-for-the-money-can-i-contribute-to-two-retirement-plans-if-i-work-two-jobs/

 

https://www.investopedia.com/ask/answers/07/simple_ira.asp

Expert Alumni
Jan 13, 2022 1:11:52 PM

It depends.  According to irs.gov,  contributions are limited to 25% of your net earnings from self-employment (not including contributions for yourself), up to $61,000 for 2022 ($58,000 for 2021; $57,000 for 2020). You can calculate your plan contributions using the tables and worksheets in Publication 560.

 

So if the $58,000 is within the 25% contribution limit for your self-employed earnings, then you are able to take that full deduction.

 

Also, according to this IRS link, The amount of salary deferrals you can contribute to retirement plans is your individual limit each calendar year no matter how many plans you're in. 

 

 

 

Returning Member
Jan 13, 2022 1:49:16 PM

So if I am reading your answer correctly. My 25% of my self employment income is $58,000. I have already contributed $26,000 to my employer 401k plan. My self employment income is from a non related party of my employer who i contributed the $$26,000 to. Do I have an individual limit overall for all plans of $58.000? Meaning i can on contribute $32,000 to my IRA Sep?

Expert Alumni
Jan 13, 2022 3:41:55 PM

Per this article from the IRS Individual 401-K plans , when you contribute to an individual 401(k),  your elective deferrals are limited to the overall $58,000 for all 401-K plans, as it says it is limited "by person, not by plan" :

 

However, this does not seem to apply to a SEP contribution, so that is why your contribution in TurboTax is not being limited. Your advisor might be referring to an individual 401(k) contribution when he mentioned the $58,000 limit.