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Author: Nizac One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75381  
Subject: SIMPLE vs SEP Date: 6/9/1999 3:45 PM
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I am trying to decide between a SIMPLE and a SEP, and have a few questions which will probably settle it if anyone can answer them. I have read the Retirement Primer, and IRS pub 560 & 590, but not many of the examples deal with my case (employer and employee).

I have two sources of income. One is reported on a W-2 from an employer. The other is self employed income that I report on schedule C. I do not have any employees (other than myself) for my self employed business.

My employer has a 401K plan to which I contribute the maximum allowed of $10K per annum.

Am I eligible to open a SIMPLE IRA and contribute $6K from my self employed income?

If not, would I be eligible to open a SEP IRA and contribute 13.04% of my self employed income (which would be less than $6K in my case)?

In either case, can I still contribute $2K to a ROTH IRA (assuming that my AGI does not go beyond the phase out limits)?

Thanks.
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Author: jocave One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11177 of 75381
Subject: Re: SIMPLE vs SEP Date: 6/9/1999 5:05 PM
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<<<<<
My employer has a 401K plan to which I contribute the maximum allowed of $10K per annum.

Am I eligible to open a SIMPLE IRA and contribute $6K from my self employed income?
>>>>>

No. The SIMPLE and 401(k) are both income deferral plans, so the limit of the *sum* of the contributions is $10k

<<<<<
If not, would I be eligible to open a SEP IRA and contribute 13.04% of my self employed income (which would be less than $6K in my case)?
>>>>>

Yes.

<<<<<
In either case, can I still contribute $2K to a ROTH IRA (assuming that my AGI does not go beyond the phase out limits)?
>>>>>

Yes.

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11188 of 75381
Subject: Re: SIMPLE vs SEP Date: 6/10/1999 10:32 AM
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Greetings, Nizac, and welcome. You wrote:

<<I am trying to decide between a SIMPLE and a SEP, and have a few questions which will probably settle it if anyone can answer them. I have read the Retirement Primer, and IRS pub 560 & 590, but not many of the examples deal with my case (employer and employee).

I have two sources of income. One is reported on a W-2 from an employer. The other is self employed income that I report on schedule C. I do not have any employees (other than myself) for my self employed business.

My employer has a 401K plan to which I contribute the maximum allowed of $10K per annum.

Am I eligible to open a SIMPLE IRA and contribute $6K from my self employed income?>>


Yes, you may. However, you will only be able to contribute up to 3% of your compensation as the EMPLOYER of yourself subject to a maximum contribution of $6K. Because you already contribute $10K to your 401k, you may not make a contribution to the SIMPLE as an employee.

<<If not, would I be eligible to open a SEP IRA and contribute 13.04% of my self employed income (which would be less than $6K in my case)?>>

Yes, and that contribution is not affected by your 401k plan contribution as it is in the SIMPLE.

<<In either case, can I still contribute $2K to a ROTH IRA (assuming that my AGI does not go beyond the phase out limits)?>>

Yes.

Regards..Pixy

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Author: Nizac One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11216 of 75381
Subject: Re: SIMPLE vs SEP Date: 6/10/1999 8:55 PM
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No. The SIMPLE and 401(k) are both income deferral plans, so the limit of the *sum* of the contributions is $10k

Thanks to jocave and TMFPixy for the answers. Follow up question (for extra credit):

Since I am already maxed out on my income deferral, could my wife defer $6K if I adopted a SIMPLE for the self employed income? Her other employer offers a Profit Sharing Plan which does not have an income deferral component to it.

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