SEP versus Traditional IRA

Forum|Forum|1 year ago
March 3, 2025
1 reply
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I am retired and have a very small business, so I set up a SEP. The allowable SEP deduction is about $2500. Does this really disqualify me from a standard maximum IRA deduction of $8K? I thought I could take both, but it seems that any contribution to a SEP is considered to be "covered by a retirement plan at work". It seems I should close the SEP completely and just take the traditional IRA deduction.

Not A Product Question

MinhT1

Being covered by a retirement plan at work does not necessarily prevent you from making a deductible IRA contribution.

Your eligibility to a deductible IRA contribution depends on your filing status and your modified Adjusted Gross Income (MAGI).

For example, if you file Single and your MAGI is $77,000 or less, you are entitled to a full deduction of your IRA contribution.

Please read this IRS document for more information.

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Steve0116Author

Thanks for the reply, but my income is above the MAGI max, so it seems I need to eliminate the SEP so my wife and I can both take the max traditional IRA deduction.

Anonymous

This is exactly my question. The limit on deductibility of a traditional IRA being related to income applies ONLY if you have "a retirement plan at work". IRS pub 590 indicates that you know if you have an IRA at work when your W2 shows the box checked by "retirement plan". My situation (and the original poster's situation) is that we are SELF EMPLOYED and have set up an SEP IRA. Thus our contributions to our SEP IRA should not constitute having "a retirement plan at work" as defined by the IRS. Thus, my view is that regardless of our income, we should be able to make a maximized SEP IRA contribution based on the amount of our self employment earnings PLUS make a fully deductible IRA contribution ($8000 for me and my spouse) in spite of having a high income. Yet turbotax says that the traditional IRA contribution is NOT DEDUCTIBLE if I make an SEP IRA contribution for the same tax year. It interprets the contribution to the SEP IRA as "having a retirement plan at work". If I delete my SEP IRA contribution for that tax year, it allows full deductibility for the traditional IRA. I think this is wrong and that since I do not have an employer sponsored retirement plan, I should be able to make a full SEP IRA contribution AND and fully deductible traditional IRA contribution for the same tax year. Please will an expert comment on this situation which is NOT COVERED at all in the IRS pub 590.