Contribution up to 100 % of comp?

Is the 100% of comp shown below (pasted from IRS site) a typo and should really be 25%? Or is the non elective ER contribution to a SAR SEP IRA (a grandfathered SEP IRA that allowed ee deferrals) allowed to be up to 100 % of comp? Thank you.

May an employer contribute to the SARSEP for its employees?

Yes, the employer may make non-elective contributions to the SEP-IRAs of its employees subject to an annual addition limit. The annual addition limit is the lesser of 100% of the employee's compensation (limited to 305,000 in 2022, $290,000 in 2021, $285,000 in 2020 and $280,000 in 2019, subject to annual cost-of-living adjustments) or $61,000 in 2022, $58,000 in 2021, $57,000 in 2020 and $56,000 in 2019, subject to annual cost-of-living adjustments). In determining this limit, all

Isn't that saying just that the annual additions limit is 100%? 

So if the person defers 90% of pay to the SARSEP, the employer contribution will be capped at 10% for 415 purposes....

13 hours ago, SSRRS said:

 

Is the 100% of comp shown below (pasted from IRS site) a typo and should really be 25%? Or is the non elective ER contribution to a SAR SEP IRA (a grandfathered SEP IRA that allowed ee deferrals) allowed to be up to 100 % of comp? Thank you.

May an employer contribute to the SARSEP for its employees?

Yes, the employer may make non-elective contributions to the SEP-IRAs of its employees subject to an annual addition limit. The annual addition limit is the lesser of 100% of the employee's compensation (limited to 305,000 in 2022, $290,000 in 2021, $285,000 in 2020 and $280,000 in 2019, subject to annual cost-of-living adjustments) or $61,000 in 2022, $58,000 in 2021, $57,000 in 2020 and $56,000 in 2019, subject to annual cost-of-living adjustments). In determining this limit, all

Keep reading that IRS page, a couple of Qs down:

How much of the contributions made to employee's SEP-IRAs may be deducted on the business's tax return?

The most that may be deducted on a business’s tax return for contributions to the employees' SEP-IRAs is the lesser of the contributions or 25% of the compensation (compensation for each employee is limited to $305,000 in 2022, $290,000 in 2021, $285,000 in 2020 and $280,000 in 2019, and subject to annual cost-of-living adjustments) paid to all the participants during the year. Elective deferrals made for the employees are not subject to the 25% of compensation limit. Self-employed individuals must make a special computation to figure out their maximum deduction for these contributions. When figuring the deduction for contributions made to the SEP-IRA, compensation is net earnings from self-employment which takes into account the following deductions; (a) the deduction for one-half of self-employment tax and (b) the deduction for contributions to the SEP-IRA. See the Instructions to Form 5305A-SEPPDF and Publication 560 for details on determining this deduction.

As Bri says, they are just telling you the individual limit.

Thank you so much Bri and Bird. Why does the IRS page, referenced above, say that the max deferral is 25% (and not 100%) of comp? 

How much may an employee defer under a SARSEP?

An employee may make an elective deferral up to the lesser of the following amounts:

• 25% of compensation, or
• $20,500 in 2022 ($19,500 in 2021 and 2020; $19,000 in 2019, subject to annual  cost-of-living adjustments).

3 hours ago, SSRRS said:

Thank you so much Bri and Bird. Why does the IRS page, referenced above, say that the max deferral is 25% (and not 100%) of comp? 

How much may an employee defer under a SARSEP?

An employee may make an elective deferral up to the lesser of the following amounts:

• 25% of compensation, or
• $20,500 in 2022 ($19,500 in 2021 and 2020; $19,000 in 2019, subject to annual  cost-of-living adjustments).

Is the deferral limit  up to 100 % of comp or 25% of comp to the SAR SEP? Thanks for any insights

19 hours ago, SSRRS said:

Thank you so much Bri and Bird. Why does the IRS page, referenced above, say that the max deferral is 25% (and not 100%) of comp? 

The employEE contribution limit in a SARSEP is indeed 25%. Total allocations, with employER contributions, could (theoretically) be 100% of pay, although I can't think of an example where that could happen since the SEP part has to be allocated pro-rata, or with permitted disparity which isn't going to get anyone near 100%. (Y'know, you're right, there are some built-in apparent contradictions in those Q and As. All statements are correct - the annual additions limit is in fact 100%, but the other limiting factors won't let anyone get there.)

Bird, where is that 25% limitation on employee deferrals indicated?  I'm peeking at 408(k)(6) which seemed like the obvious spot, but didn't see it.

On 9/15/2022 at 9:10 AM, Bri said:

Bird, where is that 25% limitation on employee deferrals indicated?  I'm peeking at 408(k)(6) which seemed like the obvious spot, but didn't see it.

I don't know. I'm going from memory and from the IRS website that was cited.

On 9/15/2022 at 6:10 AM, Bri said:

Bird, where is that 25% limitation on employee deferrals indicated?  I'm peeking at 408(k)(6) which seemed like the obvious spot, but didn't see it.

Your question intrigued me and I went down a rabbit hole. I'm not sure if this is still accurate but an article on Benefits Link from 2002 (man this place has been a great resource for a long time) came up https://benefitslink.com/articles/tarpley020313.html

It seems to hinge on §402(h) and §404(h). I don't know if those sections have been updated since 2002, I honestly can't tell from the current code sections and I haven't dug into the regulations. But that appears to be where the 25% cap is coming from. Both the 5305A-SEP (Rev June 2006) the latest version I've been able to find and the FAQs on the IRS website both reference the overall 25% limit. https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-sarseps

Honestly I thought they mirrored the qualified plan rules in many ways and "assumed" the 100% 415 limit and 25% employer limit were applicable but it appears at least at one point, and possibly still that the limit is 25% of pay limited for each employee and included both employer and employee contributions. It seems a kind of nutty result but not much nuttier than ending SARSEPs in 1996 but grandfathering existing ones. Personally I haven't come across one in quite some time but maybe this will get you where you need to be and can figure out if it's been updated since that article.