Commingling deductible and non-deductible contributions to a SEP-ORA

Submitted by Michael Philipps on Mon, 2023-01-16 12:15

Can a person make both deductible and a non-deductible contributions to the same SEP-IRA? Example: A self-employed real estate agent contributes a deductible contribution of $6,000 from 2023 earnings into her SEP-IRA. Can she also make a $700 non-deductible 2023 contribution to the same SEP-IRA?



Submitted by David Mertz on Mon, 2023-01-16 14:24

  • It’s up to the SEP-IRA custodian whether or not they permit individual contributions to be made to a SEP-IRA.  Some may not.  Making individual contributions to a SEP-IRA requires explicit instruction to the custodian identifying that the contribution is an individual contribution, not a SEP contribution, since contributions to a SEP-IRA are by default treated as SEP contributions.  To avoid the possibility of the custodian reporting on Form 5498 that a contribution was an SEP contribution when it was actually intended to be an individual contribution (or vice versa), it’s usually more straightforward to make individual contributions to an IRA separate from the SEP-IRA.  With regard to taxes, though, it doesn’t make any difference which account receives the individual contribution.  Any basis in nondeductible traditional IRA contributions applies to the IRAs in aggregate.
  • The contribution limit for SEP-IRA contributions is separate from the individual contribution limit, except that the SEP contributions reduce the amount of compensation available to support an individual contribution.

Submitted by William Tuttle on Mon, 2023-01-16 14:32

  • Are these SEP IRA contributions or IRA contributions made to a SEP IRA account?
  • SEP IRA non-deductible contributions occur when you have SEP IRA contributions in excess of 25% of compensation.
  • If excess SEP IRA contributions and taxable earnings are not removed by the tax filing date including extensions. They are not deductible and are subject to a 10% excise tax until reconciled with future available contribution space.
  • Traditional IRA contributions can be made to a SEP IRA account. If the custodian allows and tracks such contributions.
  • Just because you can do something, does not mean you should do something.
  • Personally, I would not make deductible traditional IRA contributions to a SEP IRA account, let alone traditional IRA non-deductible contributions.

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