SEP & Maximum Elective Defferals

[jasdlm]

Client is a University Professor. He electively defers $23,000 to a 403(b) plan and $18,000 to a 457 plan. He earns several hundred thousand in outside consulting income and would like to make a $44,000 SEP contribution. I have read Publication 560 (and the February 2006 thread on this Board) and think that he can only put $3,000 in his SEP. The problem is, his previous preparer has been allowing the max SEP for years. The preparer is a well-established CPA in town, phasing into retirement, with a good reputation. I feel that if he has been allowing the max SEP, I must be misunderstanding something. Does anyone have any advice?

Thanks in advance for your help.

jas

[JCH]

I don't think you're misunderstanding anything. I believe the limit is $44,000 total for elective deferrals. However, I'm confused how he could contribute the $23,000 to the 403(b), because the limit is $20,000 and only if he's over 50.

[jasdlm]

The University calculates a 'catch-up' for people who enter 'max' on their salary reduction agreement.

jas

[New York Enrolled Agent]

Jasdlm

I think the previous preparer (the cpa) has it correct.

The limitations on elective deferrals are not cordinated between §457 plans and the other elective deferrals under §402(g). Thus you can have the separate un-coordinated deferrals in the §403(b) & the §457.

There are no elective deferrals in a SEP (only in a SAR-SEP which is n/a in your post) - so the previous elective deferrals do not come into play. The overall limitation in §415(c) is determined at the employer level and not at the participant level. Thus, your taxpayer can contribute the 44K max for the "employer level" SEP based on his S/E income.

[jasdlm]

New York Enrolled Agent

Thank you very much, and thank you for walking me through the analysis. You have been extremely helpful.

Thanks again.

jas