Expert: Tad Borek Date: 5/7/2008 Subject: SEP and 401(k)
Question I have a full time job that offers 401k plan. I also have 1099 income. I'm planning on setting up SEP-IRA. Will my contributions to 401k limit my SEP contributions? Thank you.
Answer Magdalena,
There's a general concept with retirement plans called the "separate employer" principle; each employer plan has its own contribution limit. There are some exceptions though. For example, if there's common ownership -- if you had a substantial ownership stake in the company with the 401k, it might not qualify as a "separate employer". Another example...should you use a solo-401k plan instead of a SEP-IRA for your 1099 income (as many people are choosing to these days), then you the $15,500 annual maximum for "salary deferral" applies across all of your plans, in aggregate.
If you read through IRS Publication 560 http://www.irs.gov/publications/p560/index.html
you'll find some guidance on contribution limits with multiple plans, but I'd suggest getting specific advice from a tax professional (perhaps from whoever opens your SEP-IRA for you, or your solo-k if you go that route) because the rules on contribution limits can be tricky. You don't want to over-contribute accidentally of course, it defeats the purpose of deferring the 1099 income.
