SEP-IRA limit with 401k
xecutive, age 72, still works for a corporation where he is NOT an owner. He fully contributes to his 401k with the company prividing matching and profit sharing.
He also works independently and receives k1 income from a business that his CPA says can be used to fund a SEP-IRA.
The CPA also said that the fact that he has the 401k will LIMIT his contribution to the SEP IRA.
Is this “limit” rule correct? And if so, what is the rule to follow regarding this “limit” of a SEP IRA contribution if someone also has a 401k from non affiliaited firms.
Being 72, wont he have to immedatiely begin to withdraw RMD funds from the SEP IRA ? Can he keep contributing to it as long as he gets earned income from this outside business?
Permalink Submitted by Alan Spross on Tue, 2012-02-14 21:03
As long as the firms are non affiliated, the contribution limits for the 401k and SEP IRA are independent of each other and not subject to any common limits. Therefore, the CPA appears to be incorrect.
1) Elective deferral limits under 402(g) apply to the 401k deferrals (17,000 regular and 5,500 catchup age 50+). These do NOT apply to SEP contributions, for which the limit is 20% of net earnings from self employment income.
2) Sec 415c limit of 50,000 applies separately per employer and this is why the firms must be non affiliated or there would be one such limit applying to the total.
With respect to RMDs, having reached 70.5 he must calculate RMDs using the balance in his SEP IRA, but he can satisfy the RMD from any of his other TIRA or SIMPLE IRA accounts. While he can contribute to the SEP IRA, that account also produces an RMD obligation even if he has other TIRA accounts from which to take that RMD.
Typically, his 401k will not require an RMD until after he retires unless he is a 5% owner OR if his plan is one of the very few that requires ALL employees to start RMDs at 70.5.