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Do SEP contributions count towards PS 15% limit


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1. the 15% limit does not appply to SEP plans, as I understand the rules. The employee may defer as much as $6,000 per year without concern as to whether it is 15% or 25% of his/her compensation;

ON THE OTHER HAND,

2. If your question is whether the SEP contributions are to be aggregated with the employer contributions for another plan sponsored by the employer, BACK UP!

There can not be another plan sponsored by the employer (or any othe member of the controlled group) in a year in which the SEP is active.

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Are you thinking of a SIMPLE IRA program, Larry M? $6,000-per-year elective deferrals by employees under a SIMPLE IRA don't count for purposes of the 15% Code section 404 limit, it's true.

But employer contributions under a SEP arrangement are treated just like profit-sharing plan contributions (and the two would be added together, if both programs were sponsored in the same year) for purposes of the 15%-of-aggregate-comp limit of Code section 404. (There are no more pre-tax employee contributions under a SEP, unless it's an old "grandfathered" salary-reduction SEP arrangement.)

Also, I think the "no other plans" rule only applies to an employer who's trying to sponsor a SIMPLE IRA program, not a SEP arrangement.

[This message has been edited by Dave Baker (edited 08-24-1999).]

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  • 2 weeks later...

Yes. An employer claiming a deduction for a profit-sharing plan must take the SEP contribution (which would otherwise be allowable)into account when the plan's plan years both end in the same taxable year of the "employer" maintaining the plans. [iRC 404(a)(3)(A) and 404(h)(2)]

[This message has been edited by Gary Steven Lesser (edited 09-06-1999).]

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