SEP & traditional IRA

[ssiesser]

I have a client who is a salaried W-2 employee not covered by an employer plan. Client also has an unrelated side business with Sch C income. Can he contribute to a SEP based on his Sch C income and make a deductible contribution to a traditional IRA based on his unrelated W-2 income? My software wants to know if he is "covered" by a retirement plan. Is he deemed to be covered by a retirement by virtue of the existence of his SEP which would place stricter contribution limits on his ability to contribute to the IRA? Sch C business has no employees, no common control issues.

[Bird]

If he did not make a contribution for the SEP in 2014, he is not covered for 2014. (Assuming he did not make a contribution in 2014 for 2013.) In 2015, he will be considered "covered" due to the contribution made in 2015.

A summary of the "covered" rule is that a participant is "covered" for a year if s/he participates in a plan with a required contribution and accrues a benefit, like a defined benefit or money purchase plan. Plans with optional contributions go (pretty much) on a cash basis - they are covered for the year in which the contribution is made. With exceptions when contributions for a year are made in two different years...