Sep-ira

[Zee]

It's always been my understanding that a Taxpayer may have an SEP-IRA in addition to a 401-K from another employer. So, if a taxpayer is a sole-proprietor with no employees his contribution to both for 2012 cannot exceed $50,000 (assuming all the contribution rules are met). Is that correct?

[New York Enrolled Agent]

It's always been my understanding that a Taxpayer may have an SEP-IRA in addition to a 401-K from another employer. So, if a taxpayer is a sole-proprietor with no employees his contribution to both for 2012 cannot exceed $50,000 (assuming all the contribution rules are met). Is that correct?

Your post suggests that there is no common ownership issue here. Completely separate employer from the SP taxpayer.

I believe the limitation in §415(c) is on an employer basis. Thus if the taxpayer had sufficent SE income to fund the SEP to $50k the 401K elective deferral in the employer's plan would not be impacted or limited (other than the $17K limitation in 2012 for taxpayers - catchup not considered).

[Zee]

Yes, the TP is an employee with one company and participating in their 401-K plan, and has a separate small business of their own.

[Zee]

Bump...I still have an investment buyer telling me this is incorrect and cannot be done. Help!!

[New York Enrolled Agent]

Bump...I still have an investment buyer telling me this is incorrect and cannot be done. Help!!

Well I would ask the investment advisor for more than an opinion. If he/she is correct I would welcome any citation.

There appears to be no direct IRS guidance on this but look at the following section of the code. I think most commentators use an inferential backward approach to conclude that you apply the limit on an employer basis.

§415(g)

(g) Aggregation of plans
Except as provided in subsection (f)(3), the Secretary, in applying the provisions of this section to benefits or contributions under more than one plan maintained by the same employer, and to any trusts, contracts, accounts, or bonds referred to in subsection (a)(2), with respect to which the participant has the control required under section 414(b) or (c), as modified by subsection (h), shall, under regulations prescribed by the Secretary, disqualify one or more trusts, plans, contracts, accounts, or bonds, or any combination thereof until such benefits or contributions do not exceed the limitations contained in this section. In addition to taking into account such other factors as may be necessary to carry out the purposes of subsection (f), the regulations prescribed under this paragraph shall provide that no plan which has been terminated shall be disqualified until all other trusts, plans, contracts, accounts, or bonds have been disqualified

[Zee]

Thanks so much for your help so far. I've found the following link to an IRS webpage that seems to clearly agree with your conclusion. The invesment advisor has consulted with his internal sources and they say 'no" and his outside CPA also says "no. I think they're wrong.

http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---401(k)-and-Profit-Sharing-Plan-Contribution-Limits

[New York Enrolled Agent]

Thanks so much for your help so far. I've found the following link to an IRS webpage that seems to clearly agree with your conclusion. The invesment advisor has consulted with his internal sources and they say 'no" and his outside CPA also says "no. I think they're wrong.

I agree.

Here is a snip from a 2002 training manual (hence the outdated figures in A and B) - http://www.irs.gov/pub/irs-tege/epch8a02.pdf. Examiners are cautioned to look for annual additions on an employer (singular not plural) basis.

SECTION 415(C)(1) LIMITATION
The limitation applicable to defined contribution plans, stated in IRC section
415(c)(1), limits the amount of annual additions which may be contributed to an
individual's account(s) in all defined contribution plans maintained by the
employer in any one year to the lesser of
(A) $30,000, or
(B) 25 percent of the participant's compensation.