Designating IRA contrib as non deductible for SEP
Can taxpayer elect to treat SEP contribution as nondeductible? Self employed taxpayer can make an IRA contribution and designate/elect under sec 408(o)(2)(B)(ii) as nondeductible. Can the taxpayer make the same election for a SEP IRA contribution?
My intepretation is that this can be done – yes. I see no distinction between a SEP IRA and an IRA – an IRA is an IRA. I notice that PPC states that “SEP contributions can be made to an individual’s existing IRA in lieu of establishing a separate IRA for SEP contributions.” (not clear under what cite/authority this statement is made). This further enforces the concept that an IRA and a SEP IRA are treated the same.
Thanks in advance,
Jim
Permalink Submitted by Marvin Rotenberg on Wed, 2008-12-17 21:05
The instructions on Form 8606 where you report after tax contributions they do not tell you how to report an after tax SEP contribution. The form specifically refers to after tax contributions for traditional IRAs only (this form makes a distinction between traditional, SEP & SIMLPE). You can make a traditional IRA contribution to the SEP account and that can be designated as after tax, but it doesn’t apear that you can designate the SEP contribution as after tax. He is making the contribution as an employer, not as a individual. If he was making contributions for employees, he wouldn’t have a choice of taking the deduction or not so he does not have the choice when he makes his own contribution either.
Marvin
Permalink Submitted by mk foss on Thu, 2008-12-18 01:11
I disagree with Marvin’s answer. An employee can make his annual IRA contribution into the SEP estatblished by his employer instead of another traditional IRA.
With the SEP, we have a person who is both an employer and an employee. The employer contribution goes into the SEP and the employee one can be deposited there as well.
The SEP is treated like any other IRA for the purpose of taxing distributions and must be considered with other IRAs when completing Form 8606. I can’t see that there is any problem with putting a nondeductible contribution there.