I am a partner in a group practice. Our group has set up a 401k with profit sharing and group match. I am maxing out my contribution at $15500 for 2007. With the group match and profit sharing I will put $45500 into my 401k for tax year 2007. In addition to my income from my group practice I do some consulting work on my own, not related to my primary job. I will get 1099s on this additional income. Is it legal for me to set up an additional SEP-IRA to use on my additional income to lessen my tax burden even though I have maxed out the 401k? If so what is the most I can put away for 2007? Thanks.

Zip Code: 29205

Yes, even if you max out your retirement plan contributions through one employer, you can generally still contribute to a SEP based on your self-employment income. You have until April 15th (or October 15th if you go on extension) to establish and fund your SEP for the prior year.

The only time you wouldn't be able to contribute to a SEP is if you owned the majority of the stock in your practice. In that case, your practice and your consulting business would be grouped together as one entity for the purpose of calculating retirement plan contributions.

You also might be limited if your practice is a partnership such as an LLC. In that case, you report your retirement plan contributions on your 1040, and might find that you're capped at 45k.

A good person to ask this question would be the company that administers your practice's 401(k) plan.

I hope this answers your question.

Zip Code: 01801

Great answer. The guy should really consult a professional, as the IRS will be looking closely at such situations.