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Max Limit for 401K and SEP IRA combined?

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  • Max Limit for 401K and SEP IRA combined?

    I have a 401K plan as an employee and maxed at 18K.  I also do 1099 work and contribute to a SEP IRA which has a max of up to 54K (based on 25%of pay).  Does that 54 K include the 18 from 401K (so can i only do max of 36K) or can you max 401K at 18K and still put in full 54K in your SEP IRA.

  • #2
    That 54k includes the 18K employee salary deferral you put into your 401k.  So the max you could do from your 1099 income would be 36k as a profit sharing contribution.


    • #3
      The annual addition limit is separate for each unrelated employer. Assuming you have enough compensation, you can make the full $54K employer contribution for 2017.

      Note: The employer contribution is 25% of compensation. However, It is calculated as 20% of net self-employment earnings (net business profit - 1/2 SE tax. This is the equivalent of 25% of compensation.

      It is only 25% of W-2 wages as in a shareholder-employee in an S-Corp. It would be very unwise and counter-productive in such a situation to create an S-Corp. You would pay more in net FICA than you would in net SE tax.