2002 limits for PSP Keogh vs. SEP-IRA

[Guest Smichalek1]

I understand that the 2002 contribution limit to a PSP is now the lesser of $40,000 or 25% of compensation. This is now equal to a MPP.

I also read that the contribution limit to a defined contribution plan is $40,000 or 100% of compensation.

If I am self-employed with no other employees (I am the the employer and employee) and I have $40,000 of self-employment income, can I make a $40,000 deductible contribution to my PSP Keogh? Or am I limited to a $8,000 deductible contribution (20% of $40,000 since I am self-employed)?

If I am limited to 20% of compensation, should I be using a SEP-IRA instead of a PSP Keogh?

Any advice would be greatly appreciated.

[rcline46]

The allocation to any person is limited to $40,000 or 100% of pay whichever comes first to any DC (PSP, MPPP, etc) plan.

The deduction limit is 25% of pay EXCLUSIVE of 401(k) deferrals.

So, in simple terms, not adjusting for 1/2 Self Employment Income, you can put $8,000 into a PSP plan PLUS $11,000 into a 401(k) arrangement as part of the PSP, and if 50 or over this year, another $1,000 into the 401k portion of the plan.