Discussion:Contribute to IRA if covered by a SEP

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Discussion Forum Index --> Advanced Tax Questions --> Contribute to IRA if covered by a SEP

Discussion Forum Index --> Tax Questions --> Contribute to IRA if covered by a SEP

PBinNJ (talk|edits) said:

1 April 2009
Client wants to contribute to his traditional IRA for 2008. In 2008, his employer started a SEP for him and the other employees. Only employer contributes to the SEP. I believe they can still contribute to their own IRA's for 2008 but need to confirm. Thanks.

Marty1970 (talk|edits) said:

1 April 2009
Client can contribute but it may be a nondeductible contribution. You get into the 'active participant' rules and have to factor in whether or not the client and/or a spouse is 'actively participating' in an employer sponsored plan for 2008. If retirement plan box 13 on the client's W-2 is not checked, that's an indication he's not an active participant for 2008. This would make it much more likely his contribution can be deducted.

The box might not be checked for 2008 (but it would be checked for 2009) if no employer contributions were actually made until 2009 (assumes plan's year is the calendar year, which is true for most SEPs). Sometimes people who 'double up' their deduction for a year, that is they take a deduction for both a SEP and for a traditional IRA, especially the self employed owner of a business, will receive an IRS notice. The notice will acknowledges the possibility of the double deduction and might ask something like "Are you using the active participant rules under Notice 87-16?"

If an IRA contribution is nondeductible, the usual next choice if eligible is a Roth instead of a nondeductible traditional IRA.

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