coordination of SEP and 401k plan

[Gary]

An individual is employed by two companies.

One company has a SEP and the other has a 401k plan.

She participates in both plans.

My impression is that the total deferral is still 16,500 for 2011 and thus if she defers 8,000 in SEP she can defer up to 8,500 to 401k for a total of 16,500.

Is that correct? Real matter is can she defer to both plans? She earns enough compensation for such deferrals.

thanks

[QNPG]

An individual is employed by two companies.

One company has a SEP and the other has a 401k plan.

She participates in both plans.

My impression is that the total deferral is still 16,500 for 2011 and thus if she defers 8,000 in SEP she can defer up to 8,500 to 401k for a total of 16,500.

Is that correct? Real matter is can she defer to both plans? She earns enough compensation for such deferrals.

thanks

You cannot defer to a SEP IRA - deferrals are not permitted. If she is a participant in the SEP sponsored by the other employer, they're making a contribution on her behalf based on a % of her compensation.

The following link may be useful to you:

http://www.irs.gov/retirement/article/0,,id=111419,00.html#5

[Gary]

Gosh. I guess I didn't get a good night's sleep or something.

Salary deferrals were allowed for SEPs established pre 1996 or at least a long time ago.

So in that case then the individual could contribute 16,500 to their 401k plan and since it is an unrelated sponsor of the 401k plan, profit sharing contributions would not be impacted by what the other employer contributes to SEP.

Unless I missed something.

thanks

[rcline46]

The 1996 or earlier plan would be a SAR-SEP, not a SEP.

Mayber Querky is thinking of a SIMPLE IRA?

[QNPG]

The 1996 or earlier plan would be a SAR-SEP, not a SEP.

Mayber Querky is thinking of a SIMPLE IRA?

I hope I made my answer clear - if I didn't - I apologize. Simple IRA would allow deferrals but would knock out participation in a qualified plan as well, right? That's why I didn't suggest looking into that.

[austin3515]

Deferrals to SIMPLE-IRA's, SAR-SEPS and 401k's are all aggregated for purposes of 402(g),. Between all of them there is one 16,500 limit.

From 402g:

(3) Elective deferrals For purposes of this subsection, the term "elective deferrals" means, with respect to any taxable year, the sum of—

(A) any employer contribution under a qualified cash or deferred arrangement (as defined in section 401 (k)) to the extent not includible in gross income for the taxable year under subsection (e)(3) (determined without regard to this subsection),

(B) any employer contribution to the extent not includible in gross income for the taxable year under subsection (h)(1)(B) (determined without regard to this subsection), [SAR-SEP]

© any employer contribution to purchase an annuity contract under section 403 (b) under a salary reduction agreement (within the meaning of section 3121 (a)(5)(D)), and

(D) any elective employer contribution under section 408 (p)(2)(A)(i) [sIMPLE IRA's]

As somoene else mentioned, no employer contributions count towards this limit.