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I've got my own S-Corp - I found somewhere on the net that the contribution limit for SEP's is 25,500 = 15% of 170,000.

Can you guys verify this?

Thanks,
Helter
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helter asks:

I've got my own S-Corp - I found somewhere on the net that the contribution limit for SEP's is 25,500 = 15% of 170,000.

Can you guys verify this?


I can verify it. However don't take my word for it. Get Form 5305-SEP(Rev. 1-2000) from www.irs.gov. In this newly revised version you will have official verification.

I quote from this form:

Contribution limits.

The SEP rules permit
you to make an annual contribution of up to
15% of the employee's compensation or
$30,000*, whichever is less. Compensation,
for this purpose, does not include employer
contributions to the SEP or the employee's
compensation in excess of $170,000*. If you
also maintain a Model Elective SEP or any
other SEP that permits employees to make
elective deferrals, contributions to the two
SEPs together may not exceed the smaller of
$30,000* or 15% of compensation for any
employee.

* This amount reflects the cost-of-living increase effective January 1, 2000. The amount is adjusted
annually. The IRS announces the increase, if any, in a news release, in the Internal Revenue Bulletin,
and on the IRS's Internet Web Site at www.irs.gov.
Cat. No. 11825J Form 5305-SEP (Rev. 1-2000)


PtSurMr
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Contribution limits.
The SEP rules permit
you to make an annual contribution of up to
15% of the employee's compensation or
$30,000*, whichever is less. Compensation,
for this purpose, does not include employer
contributions to the SEP or the employee's
compensation in excess of $170,000.


I don't get it. How do you ever get over $25,500 if you can't use employee compensation in excess of $170,000.
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cfdunton asks:
I don't get it. How do you ever get over $25,500 if you can't use employee compensation in excess of $170,000.

The compensation amount is adjusted for inflation annually. Eventually it will go from the current 170K to 200K, then the SEP rules will permit you to make an annual contribution of up to 30K.

While the compensation number remains under 200K you are limited by the 15% rule. After inflation raises the compensation limit above 200K you will be limited by the 30K rule (assuming congress doesn't change the rules).

PtSurMr
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I don't get it. How do you ever get over $25,500 if you can't use employee compensation in excess of $170,000.

I've posed this question here as well - the answer is: more than 1 retirement plan. Say you have an S-Corp with a SEP - you get to put in 25,500. You are also an employee of a large corporation that has a 401k with a 10,500 limit - the sum would be over 30k - so that's how you hit it - your universe of retirement plan contributions for a year cannot exceed 30,000.

Helter

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