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AbbyP

Oct 26 2009, 01:29 PM

Client's compensation is $200,000 per year
Contributes $100,000 to DB plan.
How much can she add to SEP IRA?

Thanks

Also posted in Defined Benefit forum

Gary Lesser

Oct 26 2009, 02:11 PM

IRC 415(e) limit was repealed several years ago. Ignore the DB plan. Can contribute 415 limit (but excludible portion under 402(h)may be lower if SARSEP). Must use prototype or individually designed SEP/SARSEP document for document reliance.

$200,000 x .25% is allowable (up to $49,000*), excludible, and deductible if SEP + required DB amount.

If SARSEP, $200,000 x 25% is allowable (up to $49,000* and depending on definition of compensation used in document), but only 25% of includible compensation (including catch-up contributions, but excluding basic elective) is excludible from participant's income. The deductible limit is 25% of compensation (but not all is necessarily excludible from income). Generally, employers limit contributions (by design) to the excludible amount under 402(h).

* Note. $49,000 limit is reduced if integrated.

Assumes that other plan is a "pure" defined benefit plan.

David MacLennan

Oct 26 2009, 02:58 PM

Not so fast - you probably want to consider deduction limits. 404(a)(7) combined plan deduction limit also applies to SEP / DB combination.

Also, is the compensation earned income or W-2?

Does the business have employees other than owner? If so, is it PBGC covered?

AbbyP

Oct 26 2009, 02:59 PM

Thanks Gary,

That's what I thought. But got confused by this from WRERA

QUOTE

If an employer sponsors one or more defined benefit plans and one or more defined
contribution plans that cover at least one of the same employees, an overall deduction limitation
applies to the total contributions to all plans for a plan year. The overall deduction limit is
generally the greater of (1) 25 percent of compensation or (2) the amount necessary to meet the
minimum funding requirement of the defined benefit plan for the plan year. The Act provides
that the overall deduction limit applies to contributions to one or more defined contribution plans
only to the extent that such contributions exceed six percent of compensation. IRS guidance
(Notice 2007-28, 2007-14 I.R.B. 880) takes the position that if defined contribution plan
contributions are less than six percent of compensation, contributions to the defined benefit plan
are still subject to limitation of the greater of 25 percent of compensation or the minimum
required contribution. The provision provides that if defined contributions are less than six
percent of compensation, the defined benefit plan is not subject to the overall deduction limit. If
defined contributions exceed six percent of compensation, only defined contributions in excess
of six percent are counted toward the overall deduction limit.

Thanks

mwyatt

Oct 27 2009, 06:28 PM

Too bad that this is somehow getting mixed up on two threads, but a husband and wife plan not covered by PBGC is subject to the 6% limit for DC. That was why so many folks here were asking about PBGC coverage. Is true that for 2008 forward, combination plans where the DB plan is subject to Title IV coverage are exempt from the 404 combined limits.

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