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Self-employed: SEP-IRA plus traditional IRA


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A self-employed individual (Schedule C) has both a SEP and a traditional IRA. The person can make full, deductible contributions to both arrangements, right? In other words, the SEP isn't considered to be coverage under an employer-sponsored plan, and the 20% SEP contribution won't "taint" a deductible $6,000 IRA contribution.

Please forgive me if my question is simple and obvious. After two solid months in the Tax Trenches, I'm not longer capable of rational thought.

Lori Friedman

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"full deductible" is the catch. Yes, can contribute to both SEP and traditional IRA. BUT, the SEP counts as an employer provided retirement plan so the deduction for the traditional IRA is subject to the income limits.

From the bottom of page 31 here: http://www.irs.gov/pub/irs-pdf/i1040.pdf

"Were You Covered by a Retirement Plan? If you were covered by a retirement plan (qualified pension, profit-sharing (including 401(k)), annuity, SEP, SIMPLE, etc.) at work or through self-employment, your IRA deduction may be reduced or eliminated."

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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A contribution to a SEP "IS" considered as covered by an employer plan. There is a contingency for SEP contributions made after the calendar year (where the employee is considered as covered in the year the actual deposit was made). This is due to the discretionary nature of the SEP contribution.

Don't forget to consider the income level as well. Being covered by a plan at work merely creates a phaseout range (depending on tax filing status) for determining the deductibility of Traditional IRA contributions.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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Thank you for setting me straight.

Lori Friedman

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