401(k) and SEP in same year

Will, combined limits come into play with respect to an employee's salary-deferral contributions. For example, the salary deferral you do via two 401(k) plans at two different employers (including a solo-k, for self-employment income).

For employer contributions, the "separate employer rule" applies (you can google that term for detailed explanations & cites). The nature of a SEP-IRA contribution is that of an employer contribution, so it doesn't count as employee salary deferral. Contribution limits for employer contributions are applied per-employer, not across all plans. The exception is if the companies are under common control, for example self-employment income alongside a plan associated with a company you own. Barring that exception, the separate employer rule allows for higher contributions than if you had only one job.

-Tad

Great Question!

Her contributions are going to be limited to the MAXIMUM available under either plan, split between all plans she participates in while also working within the deferral limits of each plan. Sounds complicated but it really isn't.

The max deferral for a 401(k) for someone under 50 is $16,500.

The max contribution for a SIMPLE IRA (I know she has a SEP, I'm using a SIMPLE in the example because it is simple) is $10,500.

So your wife could contribute a maximum total to all plans of no more than $16,500. She can split that up between the plans however she likes as long as she doesn't defer more than $10,500 into her simple.

For the SEP IRA rules you have to factor in how employer deferrals come into play AND you have to consider what you meant by "she is going back to her own business." If her business is a corporation her limits will be impacted by her wages. If her business is an LLC - either single or multi-member - her limits will be impacted by the amount of her income subjected to SE tax. This is either as net income from a Schedule C, for a single member LLC or her guaranteed payments if she is in a multi-member LLC.

I would strongly advise you to make an appointment and meet with a tax accountant in your area to go over the rules in detail using your specific fact pattern - it makes a BIG difference. This meeting should be relatively inexpensive, likely less than a couple of hundred dollars. AND it will give you great peace of mind to get something from a professional IN WRITING that you can rely on.

You also should keep in mind that most of the response you get here may be well intentioned, you have no way of knowing whether those of us who respond to you really know what we're talking about or not. I can tell you I'm the best of the best, but just because I say it, doesn't make it so - do your own due diligence and check anything you get from any nonprofessional.

Good luck, Gene E. Utterback, EA, RFC, ABA

Gene, I agree with your post up to this point, but hope you will clarify the rest of it.

You used a SIMPLE as your example, but it's subject to different rules because it's a salary reduction plan. So combined limits do come into play and you couldn't exceed the $16,500 in total - while meeting the individual plan limits as well.

Your post implies that a SEP would be subject to that same limitation. But that isn't the case because a SEP is not a salary reduction plan. Even a full $16,500 salary deferral to the 401k would have no effect on the contribution limit of a SEP-IRA at another job, assuming there are no common-control issues that would treat the two employers as one.

As an extreme example, one could have a job where you defer $16,500 in salary, plus enough employer contribution to hit the $49,000 max for

2009. That same individual could, income/plan permitting, defer another $49,000 to a SEP-IRA associated with a separate employer, for $96,000 total.

-Tad

Thanks, Tad!

The Google terms you suggested actually led me to information about multi-employer plans, but got me down the right path which was to IRC

415 which does indeed imply that employer contributions are only considered on a per employer basis. It's called out more explicitly in the IRS examination guidelines for 415(c) (here: which I found, ironically, with the Google search terms, "irc 415 c multiple employers". A government Thrift Savings Plan bulletin describes this in plain English in the next to last paragraph of

-Will

william dot trice at ngc dot com

because it's a salary reduction plan. So combined limits do come into play

Tad,

I believe you are correct.

I deliberately did NOT use a SEP IRA in my post because I had not checked the SEP IRA rules to make sure I incorporated and listed them correctly when integrated with a 401k.

Again, I did this on purpose - I wrote from memory, knowing that there are integration or overlap rules that have to be adhered to, but which, for

401Ks and SEP IRAs, I neither had committed to memory nor had handy.

And still, off the top of my head, I do NOT know precisely how these two integrate and what the exact limits are. That's why I suggested that before the OP rely on anything posted here that he consult with local professional to get something he could rely on.

As a matter or course, while I try to always post accurate information I simply do not have the time to research every question posted. For that matter, neither would I want to assume any liability for any information I post - unless I'm paid for it and put it in writing with my signature, it's worth precisely what was paid for it .

Gene E. Utterback, EA, RFC, ABA

Tad is most correct. My original post MISSED the issue about EMPLOYER contributions and focused instead on EMPLOYEE deferrals.

40 lashes with a wet noodle to me! Gene E. Utterback, EA, RFC, ABA