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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16559
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Reading from google, I understand we can contribute to both

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Reading from google, I understand we can contribute to both 401(k) & SEP-IRA at the same time. However I am getting confused with the calculations. Can someone help me please

Employed by Company A (participating in 401k)
Salary - 100K
401k contribution - 17500

Owns and also employed by Company B (participating in SEP-IRA)
Salary - 72K
Business Profit - 50K
How much can the employer contribute under SEP-IRA?

MyVirtualCPA :

Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

MyVirtualCPA :

For the SEP IRA you can contribute 25% of the salary of $72,000 up to a maximum of $51,000

MyVirtualCPA :

But for your salary you would be able to contribute up to $18,000

MyVirtualCPA :

Is there anything else that I can assist you with today? If not, please rate my response as "excellent" so that I may receive credit for assisting you today

Thank you for the opportunity to assist, please take a moment to review my response. Then, if you need further assistance please follow up using the "Reply" button below. If no reply is needed, please rate my response as "excellent" so that I may receive credit for assisting you today. Thanks again.
Customer: replied 3 years ago.


Hi,


 


I have asked follow up questions but havent got an answer to that


 


It says if you are an owner and employer, then the contribution rate is more like 20% of the salary and not 25% of the salary (Can you expand a little more on this please)


 


Also when calculating 25%, shouldnt we calculate 25% of my salary with both company A & company B?

You would only place 25% of your salary from that business, not all your businesses combined, when calculating your SEP IRA contribution. It's only the business that has the SEP-IRA, not company A&B.

You would still be able to put in the entire 25%, but the deductible portion may be less. You can review publication 560 for more details on that, which can be found here: http://www.irs.gov/pub/irs-pdf/p560.pdf

 

You can use a calculator on the Fidelity website that will calculate this for you:

https://www.fidelity.com/retirement-ira/small-business/sep-ira

Please let me know if you need further information. Otherwise, please rate as "excellent" so that I may receive credit for assisting you today.

Customer: replied 3 years ago.


Hi,


 


Thank you for the reference to Section 560. I have not been able to follow this section which is why I put the exact numbers to you. I am not interested in contributing if I cannot claim a deduction. In the scenario above, can you please guide me how much can I contribute and claim deduction for?

You can contribute up to 25% of your salary. I assume you are a corporation. So you could calculate up to 18,000.

You can also use the calculator I linked to above as well for reference.

Thanks again for using JustAnswer and have a great day. Please don't forget to rate as excellent so that I can get credit for assisting you today.
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