401K from previous employer and Self Employed SEP !
Hi !
I used to be covered under 401K from my previous employer. In May 2007, I became self employed. I started an SEP-IRA Account to take advantage of it’s higer limits.
Here is how much I have contributed in 2007:
401K : $3400
SEP: $5000 (My Net income from Self employment is 64,500 in 2007)
Now, when my CPA tried to prepare my return using his software, it wouldn’t even let him enter my SEP IRA contribution. He says I cannot take the SEP IRA deduction because I’m covered under an employer sponsored retirement plan.
That doesn’t make sense to me. Once I leave my employer and become self employed, I should be able to contribute to SEP IRA right?
Please let me know of your thoughts.
Thanks
– Karun
Permalink Submitted by Martin Helmer on Tue, 2008-03-18 21:09
You’re correct. Assuming the 2 businesses aren’t in a controlled or affiliated service group, you have completely separate limits for each plan. Maybe the CPA entered the SEP as a traditional IRA. With a SEP, the account the funds go into is very similar to a traditional IRA and can often hold both SEP and traditional contributions simultaneously. But the deduction is taken under different Internal Revenue code sections—-219 for a traditional IRA vs. 404(h) for the SEP. Your active participant status in the 401(k) has nothing to do with the SEP deduction.