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Combination 10% Money Purchase Contribution and SEP contribution


Guest Liz Schulte
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Guest Liz Schulte

I have been unable to determine if 1) an employer can have a SEP and a money purchase plan at the same time, and 2) how the SEP contribution affects the deductibility of the money purchase plan contribution.

The study guide for the Fall 1997 ASPA C2-DC review course states that "a deduction for a contribution to a SEP reduces the amount of deduction otherwise available for contributions to a qualified defined contribution plan", and reference code section 404(h)(2). 404(h)(2) discusses the effect on a stock bonus and a profit sharing trust of a contribution to a SEP plan, but not a money purchase plan. Since the code section does not specifically reference the effect upon money purchase plans, I am hesitant to think that it applies to this type of plan. Any thoughts or experience with this issue?

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  • 2 weeks later...

The SEP/SARSEP contributions are considered in the 25% limitations under IRC Sections 415 and 404; that is, along with any MP or PS contributions. Thus, a 25% MP and a SEP wouldn't work; incidently, the MP wd be disqualified first under 415. The 15 percent PS limit is directly reduced by any SEP/SARSEP contributions. It should be noted that the 15 percent "exclusionary" limit applicable to individuals under IRC 402 is still based on taxable compensation.

[This message has been edited by Gary Steven Lesser (edited 02-14-99).]

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