Self-employed Issues

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Apr 28, 2013 - 11:06AM

SEP IRA eligible if I have both W2 (with employer 401k) and 1099 income?

I have both W2 and 1099-Misc Income. My employer offers a 401k and I will contribute the max (17,500).

I have a sole-proprietorship for my 1099-income. Am I eligible to open a SEP-IRA based on my 1099-Misc income since I have a 401k?

If so, do the 401k contributions somehow minimize the amount of money I can contribute to the SEP IRA?

Assume my total income is > 300k. Assume my Sched C income is 50k.

Thanks for the help.

Zip Code: 44106

Andrew Schwartz CPA

Apr 29, 2013 - 9:12PM

Re: SEP IRA eligible if I have both W2 (with employer 401k) and 1099 income?

As long as you own less than 50% of the practice where you work as an employee, you should be able to contribute 20% of your net self-employment income into a SEP IRA. When businesses have common ownership, they are considered one business for retirement plan purposes. Otherwise, every business owner would set up a second business that employs the owner and the owner's family, and then offers very generous benefits, while the employees of the original business gets mediocre benefits.

There is a quirky rule where the amount of money you and your employer contribute into a 403b account impacts the amount that can be contributed to a SEP. But if you work for a private business that offers a 401k, this shouldn't be an issue.

Zip Code: 01801