Defined Benefit and SEP IRA

[Guest AbbyP]

Client's compensation is $200,000 per year

Contributes $100,000 to DB plan.

How much can she add to SEP IRA?

Thanks

[Gary Lesser]

Client's compensation is $200,000 per year

Contributes $100,000 to DB plan.

How much can she add to SEP IRA?

Thanks

IRC 415(e) limit was repealed several years ago. Ignore the DB plan. Can contribute 415 limit (but excludible portion under 402(h) may be lower if SARSEP). Must use prototype or individually designed SEP/SARSEP document for document reliance.

$200,000 x .25% is allowable (up to $49,000*), excludible, and deductible if SEP + required DB amount.

If SARSEP, $200,000 x 25% is allowable (up to $49,000* and depending on definition of compensation used in document), but only 25% of includible compensation (including catch-up contributions, but excluding basic elective) is excludible from participant's income. The deductible limit is 25% of compensation (but not all is necessarily excludible from income). Generally, employers limit contributions (by design) to the excludible amount under 402(h).

* Note. $49,000 limit is reduced if integrated.

Assumes that other plan is a "pure" defined benefit plan.

[Guest AbbyP]

For follow-up, see Gary's response and any follow-up here http://benefitslink.com/boards/index.php?s...c=43751&hl=

[Andy the Actuary]

If DB Plan is not subject to PBGC coverage, wouldn't IRC 404(a)(7) apply so that SEP IRA contribution would be limited to 6% of compensation?

[mwyatt]

PBGC or no PBGC coverage on the DB plan?

[David MacLennan]

Not so fast - you probably want to consider deduction limits. 404(a)(7) combined plan deduction limit also applies to SEP / DB combination.

Also, is the compensation earned income or W-2?

Does the business have employees other than owner? If so, is it PBGC covered?

[Guest AbbyP]

Only employees are owner and spouse.

Wages are w-2

[Blinky the 3-eyed Fish]

Only employees are owner and spouse.

So it's not covered by the PBGC, which means that you can go back to A the A's quote below.

If DB Plan is not subject to PBGC coverage, wouldn't IRC 404(a)(7) apply so that SEP IRA contribution would be limited to 6% of compensation?

[AndyH]

So 404(a)(7) would apply (above 6% DC right)? There seems to be a vast vacuum on that question.

Also, about the exclusive plan rule that apparently relates to model SEPS? Is there a "safe" non-model SEP that could be used to co-exist with a DB plan?

So, Gary, why the "ignore the DB plan" reply? That seems to overlook a number of issues.