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NowInMaui asks:

My questions are:

1. Can I contribute to both my SEP and the partnership 401(k)?

2. Pub 590 says that the max I can contribute to my SEP is 15% or $30,000, whichever is less. But, for sole proprietors, there is a SEP contribution $25,500 cap. It goes further and seems to say, though, that one can also contribute to another qualified plan like a 401(k) plan, but there is a total $30,000 contribution limit between the two.

3. I would like to make the maximum contribution, but want to stay within the law and certainly don't want to get audited. Am I reading Pub 590 correctly?


IMHO you are interpreting the rules correctly for the overall limit. But Pubs 590 and 560 both address the plans of a single employer, while you are actually using the plans of two entirely different employers (yourself and the partnership). These two plans stand alone, and you are allowed to contribute up to the maximum allowed separately for those plans. Still, it's my understanding that, as an individual, your combined contributions cannot exceed a total contribution limit for the year. In 2001, that happens to be $35,000, the upper limit for the 401(k) alone. Using that limit, you could in theory contribute up to $30K (subject to the percentage limitation) to the SEP based on your Schedule C net income (that plan's limit), and then contribute another $5K from your partnership compensation to the 401k, to make a total contribution of $35K for the year to both plans.

Regards..Pixy
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