Self employed SEP contribtion and deductible IRA contribution (W2) in the same year?
Individual tax payer earns $112,000 from regular employment (w-2). They are not covered by an employer plan (NO employer sponsored plan exists). They also have their own side business that produces $10,000/yr. in self employment income. They contributed $2,000 to a SEP based on their business income.
Can they also contribute $6,000 to a DEDUCTIBLE IRA?
Permalink Submitted by Alan - IRA critic on Tue, 2013-06-04 17:20
They cannot make a deductible TIRA contribution at this income level if they made a SEP contribution IN (not for) the same year. The SEP contribution has the same affect as if they were a participant in a plan at the regular employer.
Permalink Submitted by Michael Neuenschwander on Tue, 2013-06-04 17:59
To clarify even though the contributions are for two seperate entities? So based on these figures it would be best to forgo the SEP and take the deductible IRALastly, your comment regarding the SEP contribution IN the same year vs. FOR teh same year – assuming they make IRA contributions monthly in 2013, could they make a SEP contribution FOR 2013 if it was made in 2014? Thanks for the clarification
Permalink Submitted by Alan - IRA critic on Tue, 2013-06-04 19:21
Yes, if they make the SEP contribution for 2013 in 2014 and do not make a SEP contribution IN 2013, they are not considered to be a SEP participant in 2013 and therefore could qualify to deduct a full TIRA contribution for 2013. Of course, they could not make a deductible TIRA contribution for 2014 under this scenario. With respect to the different employers, the SEP or TIRA contributions are still made for the same taxpayer so the income limits do apply.