Question

SEP or IRA Eligibility

Forum|Forum|6 years ago
April 15, 2020
1 reply
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I participated in my employers 401k plan from January until March 2019 when I was let go. I only contributed 25% of what I was eligible to contribute in 2019.

My wife has a sole proprietorship. I would like to reduce my overall tax bill by having her contribute to a SEP or both of us contribute to a IRA whichever gives us the biggest deduction.

We are both 60 years old.

First, can we do either for 2019 given I participated in a corporate 401k?

Second, if she can contribute to a SEP does she take 20% or 25% of her Schedule C Line 31 Net Profits as the maximum SEP contribution?

Third, if she cant contribute to a SEP can we both contribute to a IRA? (I believe there is a $7k limit for each of us.)

Thank you.

Not A Product Question

K

KarenM90

Yes, you can contribute to both plans .

TurboTax will help you calculate the maximum contributions.

The IRS considers these two separate companies as long as they are not under common control.

Here is an IRS link that addresses this: SEP and 401K

Generally the amount she can contribute 20% of net income from the business, but please see page 23 of this IRS link. Note that the calculation of the contribution rate (Rate Table for Self Employed) will depend on the plan contribution rate: SEP Contribution Calculation

You may still be able to contribute to an IRA, subject to annual limits, but please see this link for more information: SEPs and IRAs

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