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What is maximum contribution to an integrated SEP?


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It is possible to receive more than $25,500 BUT VERY UNLIKELY. Reason: Code Section 402(h) does not provide for a maximum compensation cap. However, all integrated PROTOTYPE plans (that I am aware of) plans provide for a maximum allocation of 15 percent of the current compensation limit ($170,000); and plan provisions must be followed. An individually designed plan would not be required to have such a provision (which is required under the LRMs for a prototype). Getting a PLR is, of course, essential. Nonetheless there is a maximum provided under Code Section 402(h). That maximum would reduce the $30,000 limit (now $35,000) by the plans integration level (assume $80,400) by the integration pread (assume 5.7%). Thus, $30,417.20 would be the maximum that could be allocated under an individually designed integrated SEP (for 2001). For this result to occur, the employer would have to have several (oftentimes many)lower paid employees. If the employer contributed 15 percent of compensation (limited to $170,000 for deductioin purposes), that amount could get allocated in an integrated fashion. Amounts allocated in excess of $30,417 (assuming the TWB and 5.7% spread were used) would be included in the participants income. Thus, the plan should be designed to provide the highest paid (owner) individual with a contribution of $30,417.20. The contribution percentage would then be 15% (maximum) or less.

Hope this helps. If you have the SIMPLE, SEP, and SARSEP Answer Book, see Q 11:5 (6th Edition).

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