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SEPIRAUSER
New Member

SEP IRA and 401K contribution household wage criteria?

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

1 Best answer

Accepted Solutions
Zbucklyo
Level 9

SEP IRA and 401K contribution household wage criteria?

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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20 Replies
SweetieJean
Level 15

SEP IRA and 401K contribution household wage criteria?

SweetieJean
Level 15

SEP IRA and 401K contribution household wage criteria?

"Spouse 401 K(18K), Different employer 401k (18K) during the same year?"
The maximum is $18k per person, not per employer.
SEPIRAUSER
New Member

SEP IRA and 401K contribution household wage criteria?

Yes. My question is can I put 18 K towards a W2 employer towards 401k Plan while my wife puts 18K towards her W2 employer 401K plan in addition to 25% of my Sole Prop Profit towards my SEP IRA. Assuming that my Sole Prop NetProfit is 80 K and 25 % of that is 20k. My W2 employer is different than my Sole Prop and is different than my Spouse W2 employer.
Critter
Level 15

SEP IRA and 401K contribution household wage criteria?

Yes, you can put into a 401K & a SEP IRA in the same tax year  ... read the rules in the link posted above.
SweetieJean
Level 15

SEP IRA and 401K contribution household wage criteria?

As indicated in the link above, the amount of the regular IRA contribution that you can DEDUCT on your income tax return may be reduced or eliminated due to your participation in the SEP plan.
SEPIRAUSER
New Member

SEP IRA and 401K contribution household wage criteria?

Can you paste the section so that I can ready carefully. Sorry for asking again and I really thank you for your help. I just need to make sure that  there is no Income CAP.
SweetieJean
Level 15

SEP IRA and 401K contribution household wage criteria?

SEPIRAUSER
New Member

SEP IRA and 401K contribution household wage criteria?

THanks that table is very informative. So for a Married File Jointly with AGI more than 118K there is no deduction for IRA. does the same assumtption hold true for SEP IRA? Your first answer contradticts with the comments by Critter#2 user. which one is correct?
dmertz
Level 15

SEP IRA and 401K contribution household wage criteria?

SweetieJean, your reference applies to regular personal IRA contributions, not the contributions being discussed here.

The $18k amounts are individual employee elective deferrals subject to section 402(g) limitation.  SEP IRA contribution are employer contributions limited under section 402(h).  These are independent limits.
dmertz
Level 15

SEP IRA and 401K contribution household wage criteria?

As Zbucklyo mentioned, for a self-employed individual, a special calculation must be done because, in determining the amount of which 25% is able to be contributed to a SEP IRA, net profit must effectively be reduced by the deductible portion of SE taxes and the amount of the SEP IRA contribution itself before multiplying by 25%.  This result is equal to reducing net profit by the deductible portion of SE taxes and then multiplying by 20%.
SEPIRAUSER
New Member

SEP IRA and 401K contribution household wage criteria?

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

SEP IRA and 401K contribution household wage criteria?

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.
SEPIRAUSER
New Member

SEP IRA and 401K contribution household wage criteria?

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

SEP IRA and 401K contribution household wage criteria?

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.
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