SEP in addtion to 403(b)

[dmb]

I have a client who participates in a 403(B) plan. He also has a sole prop business and would like to know if he can have a SEP based on his sole prop business?? Thanks.

[Guest kdm]

Yes, he can, however he is subject to one 415© limit of 40K. This rule is unique to TSA participants that also control or own another business.

[Gary Lesser]

For 2001, the SEP contribution would not have to be aggregated with the 403(B) contribution unless (1) the individual was also in control of another organization (as here) (see Treas Reg 1.415-8(d)(1)), or made the alternate election ("C" election) to use the 415 limits.

For 2002, only item (1) above could apply.

[see IRC 415(k)(4), amended by EGTRRA, effective for limitation years beginning after 1999 (yes, 1999); which is nearly identical to (and codifing) the rule contained in existing Treas Reg Sec 1.415-8(d)(2)]

[Guest kdm]

Gary, it is my understanding that under Treas Reg 1.415-8(d)(1), the participant under a Section 403(B) annuity contract is deemed to maintain the Section 403(B) contract and thus have one 415© limit when also maintaining a plan from self-employment.

I know of a real life example where a university employee was maximizing contributions to a 403(B) annuity contract and maximizing a SEP based on a sole proprietor business and got caught by the IRS because the employee/sole proprietor exceeded the 415© limit when both contributions where added together.

Is your earlier response agreeing with this conclusion?

[mbozek]

Isn't the aggregation rule for tax years beginning 2002 restricted to businesses in which the 403(B) annuity participant controls more than 50% of the stock or profits. For tax years prior to 2002 there was also an aggregation requirement if the employee took special election C.

[Gary Lesser]

Agreed (as edited).