SEP-IRA and 401K combined limits

Feb 06, 2013 1 Replies

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gindie 13 years ago

I've read several web postings, but I want to make sure I have this right. Here's the specific situation:

1)Worked for Employer A and contributed $1000 to the 401K in 2013.
2)Changed employers during the year.
3)New Employer B has a SEP-IRA where they contribute 25% of the employees wages.
4)Salary at Employer B is $160K.

What is the maximum that Employer B can contribute to the employee's SEP-IRA? In my reading it appears that the answer is $39K (25% x $160,000 - $1000).

Am I correct?

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Phil Marti 13 years ago

The lesser of $50,000 or the employee's compensation, so if your salary is exactly $160,000, $40,000. Your $1,000 salary deferral at the prior employer doesn't affect this limit. If your new employer had a 401(k) rather than a SEP the $1,000 would reduce the amount you could contribute.

See Publications 525 and 560.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

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