Denise,

Thanks for the quick response. I posted more questions as a response, but they may have gotten lost. I am reposting them as an original post, with pertinent parts of my original post and your response included.

[i]My original questions:[/i]

An individual has $10,000 in net profit from an unincorporated business, as reportable on Schedule C. He has no regular job, but has interest and dividend income. He wants to set up a SIMPLE and maximize his contribution. His self-employment tax is 13.3% of 92.35% of $10,000 = $1,228.26 (Item 5 of Schedule SE Section A). The deduction for employer-equivalent portion of self-employment tax is 57.51% of $1,228.26 = $706.37. The base for a Keogh or similar plan is $10,000 – $706.37 = $9,293.63. He, as the employer must make a 3% matching contribution, because there is no exception for owner-employees, unlike the top heavy contribution requirement for a profit sharing plan being able to be satisfies by making it only to non-key employees. The $9,293.63 must be split into net compensation, call it C, and the 3% matching contribution. Thus, C + .03C = $9,293.63, 1.03C = $9,293.63 and C= $9,293.63 ÷ 1.03 = $9,022.94. The matching contribution is equal to .03 × $9,022.94 = $270.69. The net compensation of $9,022.94 is less than the dollar limitation, so this entire amount may be deferred into the SIMPLE.

Can the individual contribute an additional $5,000 to a Roth or traditional IRA, or does the maximum SIMPLE contribution bring his compensation down to $0, or to $10,000 – $9,293.63 = $706.37?

Denise’s response:

 Double check your calculations. I am getting a $9,235.00 for a SIMPLE IRA
 Yes. The individual can still contribute to an IRA.
 The 401(k) allows for about $60 more in contributions. Other than that, suitability/advantage is based on facts, circumstances and the client’s retirement plans profile.

My further questions:

Thanks for a quick response. I have further questions:

1. How did you get $9,235, rather than $9,294 (to the nearest dollar) as the maximum SIMPLE contribution? Where is my mistake? My post shows all my calculations. I used pp. 22, 23 and 24 of IRS Publication 560.
2. How did you get “about $60 more” for a maximum 401(k) contribution?
3. Is my breakdown of the SIMPLE contribution to employer match and employee deferral method, i.e. C/1.03 = employee deferral and 3% of this amount = employer match correct?
4. If the self-employed person can also put $5,000 into a Roth or traditional IRA, then the total of his SIMPLE contribution and regular IRA contribution is more than his compensation. Is this permissible?
5. Suppose that the self-employed person is 50 or older and is also allowed a $2,500 catch-up contribution for the SIMPLE and a $1,000 catch-up contribution for the regular IRA. I suppose that the latter is not a problem, if the answer to question 5 is “Yes.” The catch-up contribution for a 401(k) does not count towards the Section 415 limitation on addition to account. Can the 50+ year-old self-employed person “defer” $9,235 + $2,500 to the SIMPLE from $10,000 in Schedule C net profits?