making a deductible IRA contribution to a SEP account
Dear Alan et al,
In a year where SEP employer contributions aren’t made into SEP accounts but deductible IRA contributions are made, is a separate IRA account necessary to receive these deductible IRA contributions?
For context, I have two clients who have SEP plans. We have determined that for the 2022 tax year, they’re going to be better off foregoing the employer contributions into their SEP plans. Instead, they each plan to make a $7,000 deductible IRA contribution because without the SEP employer contributions, they wouldn’t have been covered by a company retirement plan and they can contribute more into retirement this way.
Thanks in advance for your guidance,
Chris
Permalink Submitted by Alan - IRA critic on Sun, 2023-03-26 19:52
Because a SEP contribution is treated as made in the year contributed (and so reported on Form 5498 by the custodian), if a SEP contribution was made in 2022 for either the 2022 or 2021 tax year, the taxpayer is treated as participating in an employer plan in 2022 and that would trigger the MAGI limits for making a 2022 deductible TIRA contribution. Not making a SEP contribution in 2023 would result in a deductible contribution without the MAGI limit being allowed for 2023, but not for 2022.