Permalink Submitted by mk foss on Fri, 2009-02-13 19:19
If the employee wants to make an IRA contribution, it can be deposited into the SEP IRA. All of the rules for a traditional (deductible or nondeductbie) IRA apply.
Most often IRA contributions are not made to the SEP because there is no extra benefit in placing them there.
Permalink Submitted by Linda Randazzo on Mon, 2009-02-16 15:47
I always thought the employer had to make the contribution. Your saying that the employee can but it will be no benefit? You mean it won’t be considered a pre-tax contribution? Thanks for clarifying for me.
Permalink Submitted by Alan Spross on Mon, 2009-02-16 22:51
A SEP IRA is a traditional IRA set up to receive employer contributions as a SEP- Traditional IRA. The contribution rules are basically the only difference between the SEP IRA and a basic TIRA. Distribution rules and RMD rules are the same. My impression is that the SEP replaced the SARSEP after 1996 since Congress wanted a small and simpler employer plan that used an IRA without the ADP testing requirements.
But an employee can also treat their current SEP as a basic TIRA for making their regular TIRA contribution to it in addition to the SEP IRA employer contribution. The IRA custodian must identify each type of contribution in order to complete the 5498 correctly. In addition, since the SEP contribution constitutes participation in an employer retirement plan, it will affect the deductibility of the supplemental TIRA contribution, as it would even if the TIRA contribution was made to a separate TIRA. If this TIRA contribution cannot be deducted, a Form 8606 should be filed to report the basis. Of course, a SEP IRA contribution itself MUST be deductible, or it is an excess contribution that must be corrected.
I think Mary Kay is saying that it is less confusing for most non employer SEP participants to make their TIRA contributions to a straight TIRA.
Permalink Submitted by mk foss on Tue, 2009-02-17 18:04
Yes, that’s exactly what I meant to say. I was just trying to save words.
The old SAR-SEP allowed employees to defer amounts to the SEP. They’ve been gone for a long time and I didn’t thing the original poster was asking about them.
Permalink Submitted by Al Fry on Wed, 2009-02-18 16:01
So, again, the diff is one is contribution (which may or may not be deductible); while a SAR-SEP (which could still be around) payment by employee is a deferral (always deductible, because it is not included in taxable income). Gorsh I wsa hpoing th neu formar wuld havre a spel chek biult inti ti.
Permalink Submitted by mk foss on Fri, 2009-02-13 19:19
If the employee wants to make an IRA contribution, it can be deposited into the SEP IRA. All of the rules for a traditional (deductible or nondeductbie) IRA apply.
Most often IRA contributions are not made to the SEP because there is no extra benefit in placing them there.
Permalink Submitted by Linda Randazzo on Mon, 2009-02-16 15:47
I always thought the employer had to make the contribution. Your saying that the employee can but it will be no benefit? You mean it won’t be considered a pre-tax contribution? Thanks for clarifying for me.
Permalink Submitted by Al Fry on Mon, 2009-02-16 16:18
Mary Kay – whats the diff between the ee making a contribution and the old SAR-SEP? One deductible and the other not?
Permalink Submitted by Alan Spross on Mon, 2009-02-16 22:51
A SEP IRA is a traditional IRA set up to receive employer contributions as a SEP- Traditional IRA. The contribution rules are basically the only difference between the SEP IRA and a basic TIRA. Distribution rules and RMD rules are the same. My impression is that the SEP replaced the SARSEP after 1996 since Congress wanted a small and simpler employer plan that used an IRA without the ADP testing requirements.
But an employee can also treat their current SEP as a basic TIRA for making their regular TIRA contribution to it in addition to the SEP IRA employer contribution. The IRA custodian must identify each type of contribution in order to complete the 5498 correctly. In addition, since the SEP contribution constitutes participation in an employer retirement plan, it will affect the deductibility of the supplemental TIRA contribution, as it would even if the TIRA contribution was made to a separate TIRA. If this TIRA contribution cannot be deducted, a Form 8606 should be filed to report the basis. Of course, a SEP IRA contribution itself MUST be deductible, or it is an excess contribution that must be corrected.
I think Mary Kay is saying that it is less confusing for most non employer SEP participants to make their TIRA contributions to a straight TIRA.
Permalink Submitted by mk foss on Tue, 2009-02-17 18:04
Yes, that’s exactly what I meant to say. I was just trying to save words.
The old SAR-SEP allowed employees to defer amounts to the SEP. They’ve been gone for a long time and I didn’t thing the original poster was asking about them.
Permalink Submitted by Al Fry on Wed, 2009-02-18 16:01
So, again, the diff is one is contribution (which may or may not be deductible); while a SAR-SEP (which could still be around) payment by employee is a deferral (always deductible, because it is not included in taxable income). Gorsh I wsa hpoing th neu formar wuld havre a spel chek biult inti ti.