2 Incomes employee and self employed

[Guest szaidman]

An employee at a company has maxed out on his 401(k) deferral. This individual also has a consulting business where he earns additional income. Can he establish a SEP for the consulting business in order to defer more than the $14000 max? If yes, how much does the 401(k) limit the amount he can put into the SEP?

[Bird]

The $14,000 limit is a limit that applies to the individual, so he can't defer any more in another plan.

However, he can set up a SEP for his consulting income (as long as that business is unrelated to the other company - it's not that simple but let's assume that's the case) and make an EMPLOYER contribution of 25% of his earned income (that's roughly 20% of net earnings before the contribution), but not more than $42,000. Maybe that's what you meant but he's not "defer"ing income; the employer (in this case, it's himself) is making a contribution.