I work for a major corporation with a 401K plan. I have nearly maxed out my contributions this year and will probably do so next year. I also have a sole proprietorship which should be profitable next year. Will the IRS let me contribute 20% of my self employment income to a SEP in addition to my contributions through my other employer?

-Robert

I work for a major corporation with a 401K plan. I have nearly maxed out my contributions this year and will probably do so next year. I also have a sole proprietorship which should be profitable next year. Will the IRS let me contribute 20% of my self employment income to a SEP in addition to my contributions through my other employer?

Yes. You can also make an IRA contribution of top of those two. Deductibility of a traditional IRA contribution would be subject to the AGI phaseouts.

See IRS Publications 560 and 590.

Phil

You can also make an IRA contribution of top of those two.

Unfortunately or fortunately I cannot. I am above the max income for IRAs.

Thanks for the SEP/401k confirmation though.

-Robert

Unfortunately or fortunately I cannot. I am above the max income for IRAs.

Such a number doesn't exist. If you're under 70 1/2 and have taxable compensation, you can make an IRA contribution on top of your retirement plan (401(k) and SEP) contributions. In your case it sounds like your AGI is too high for a Roth, so your only choice would be a nondeductible traditional IRA contribution. Again, see Pub 590, which it sounds like you didn't, which, while I wouldn't lie to you, means that you just accepted what some stranger told you over the ether. Not very Foolish.

That said, "can" and "should" aren't the same. Under current tax law, my preference is a regular taxable investment account holding tax-managed assets rather than a nondeductible traditional IRA contribution. If, or should I say when, they change the treatment of long-term gains, I'll revisit this opinion.

Phil

Sorry I thought that the limits applied to both Roth and traditional IRAs.

-Robert