SEP and Profit Sharing Plan

[DP]

Our client, a medical practice, has a Profit Sharing Plan which will give their doctors the maximum $40,000 contribution for 2002. Several of the doctors also receive 1099 income from making speeches, etc. These doctors want to establish individual SEP's on their own and contribute another $40,000 to the SEP based on their 1099 income.

Is this allowable for them to receive $40,000 in PS from their employer, and also contribute another $40,000 to their own SEP? Can they use Form 5305-SEP or does it have to be a prototype SEP? Thanks.

[mbozek]

The income from the speeches would be income of an separate business which is 100% owned by the Dr and SEP plan would have to be aggregated with the ps plan of the medical business if a Dr controls more than 50% of the medical practice under the congroup rules. Also under the current law only 15% of participant's compensaton can be excluded from participant's income in SEP even though employer can deduct 25% of compensaton. Excess contributons are subject to a 10% tax. Congress is expected to fix this glitch. Every sep participant must receive a 5303-Sep.