Contribute to SEP IRA and traditional IRA in same tax year?

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Superorb
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Contribute to SEP IRA and traditional IRA in same tax year?

Post by Superorb » Thu Apr 20, 2017 10:19 am

Can I contribute the max ($5,500) to my traditional IRA and then also contribute the max (whatever it calculates to) to my SEP IRA for the same 2017 tax year?

DSInvestor
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Re: Contribute to SEP IRA and traditional IRA in same tax year?

Post by DSInvestor » Thu Apr 20, 2017 10:22 am

Yes. Traditional IRA contribution limits are separate from SEP-IRA limits. Please be aware that those covered by employer plans (SEP-IRA is an employer plan), are subject to Traditional IRA deduction phase out. See IRA deduction limits for more details: https://www.irs.gov/retirement-plans/ir ... ion-limits

If you cannot take the deduction for Traditional IRA contributions, check to see if you're eligible for direct Roth IRA contributions. Roth IRA contributions are better than non-deductible Traditional IRA contributions.
IRS Page on Roth IRA contribution limits: https://www.irs.gov/retirement-plans/roth-iras

Superorb
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Re: Contribute to SEP IRA and traditional IRA in same tax year?

Post by Superorb » Thu Apr 20, 2017 10:28 am

Yeah I thought they were allowed. I did $5,500 for 2016 and then the max $4,500) allowed for my SEP for 2016 and Merrill canceled the transfer telling me you can't contribute more than $5,500/year even if it's to a SEP. Our AGI was low, around $50k.

DSInvestor
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Re: Contribute to SEP IRA and traditional IRA in same tax year?

Post by DSInvestor » Thu Apr 20, 2017 10:47 am

At Vanguard, my SEP-IRA allowed for employer and employee contributions. If employee contributions are made to SEP-IRA, that's the same as the Traditional IRA contribution with limit of $5500. Employer contributions to SEP-IRA have 53K limit (2016).

If Merrill's SEP-IRA also allowed for employee contributions, you may have selected the wrong contribution type. Make sure you select employer contribution for your self employed business.

Superorb
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Re: Contribute to SEP IRA and traditional IRA in same tax year?

Post by Superorb » Thu Apr 20, 2017 10:51 am

Ok. I'm self employed, so I should be able to contribute as both. Shouldn't Merrill have been able to distinguish between the two?

DSInvestor
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Re: Contribute to SEP IRA and traditional IRA in same tax year?

Post by DSInvestor » Thu Apr 20, 2017 11:12 am

Superorb wrote:Ok. I'm self employed, so I should be able to contribute as both. Shouldn't Merrill have been able to distinguish between the two?
Yes, as long as you code the SEP-IRA contribution as an employer contribution. If it is mistakenly coded as an employee contribution then that would be a normal Traditional IRA contribution into your SEP-IRA and it would be correct to reject the contribution if you've already contributed $5500 to a Traditional IRA at Merrill.

Superorb
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Re: Contribute to SEP IRA and traditional IRA in same tax year?

Post by Superorb » Thu Apr 20, 2017 11:16 am

DSInvestor wrote:
Superorb wrote:Ok. I'm self employed, so I should be able to contribute as both. Shouldn't Merrill have been able to distinguish between the two?
Yes, as long as you code the SEP-IRA contribution as an employer contribution. If it is mistakenly coded as an employee contribution then that would be a normal Traditional IRA contribution into your SEP-IRA and it would be correct to reject the contribution if you've already contributed $5500 to a Traditional IRA at Merrill.
There was no option on the form to select employee/employer. Guess I'll give them a call. I filed my return including the SEP contribution and the deadline has passed :(

DSInvestor
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Re: Contribute to SEP IRA and traditional IRA in same tax year?

Post by DSInvestor » Thu Apr 20, 2017 11:18 am

Superorb wrote:
DSInvestor wrote:
Superorb wrote:Ok. I'm self employed, so I should be able to contribute as both. Shouldn't Merrill have been able to distinguish between the two?
Yes, as long as you code the SEP-IRA contribution as an employer contribution. If it is mistakenly coded as an employee contribution then that would be a normal Traditional IRA contribution into your SEP-IRA and it would be correct to reject the contribution if you've already contributed $5500 to a Traditional IRA at Merrill.
There was no option on the form to select employee/employer. Guess I'll give them a call. I filed my return including the SEP contribution and the deadline has passed :(
If you submitted the contribution ahead of the deadline and there was a problem, there should be a way to allow the contribution after the error is corrected. It sounds like the error was on Merrill's end.

Superorb
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Re: Contribute to SEP IRA and traditional IRA in same tax year?

Post by Superorb » Thu Apr 20, 2017 11:21 am

DSInvestor wrote: If you submitted the contribution ahead of the deadline and there was a problem, there should be a way to allow the contribution after the error is corrected. It sounds like the error was on Merrill's end.
Yes, Monday. They're claiming that the website I used was only for employee contributions, and I have to create a new account to do employer contributions on a different website. And that I should contact a tax adviser. Really disappointed in them right now.

Spirit Rider
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Re: Contribute to SEP IRA and traditional IRA in same tax year?

Post by Spirit Rider » Thu Apr 20, 2017 1:12 pm

Superorb wrote:
DSInvestor wrote: If you submitted the contribution ahead of the deadline and there was a problem, there should be a way to allow the contribution after the error is corrected. It sounds like the error was on Merrill's end.
Yes, Monday. They're claiming that the website I used was only for employee contributions, and I have to create a new account to do employer contributions on a different website. And that I should contact a tax adviser. Really disappointed in them right now.
Did you have a true Sep IRA account? If so, there are no employee contributions to a SEP IRA. By default, contributions to a SEP IRA are employer contributions. A custodian can allow traditional IRA contributions to a SEP IRA, but they must be made by specific designation.

If you attempted to make your SEP IRA contributions to an existing traditional IRA account, the behavior you described would occur.

Superorb
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Re: Contribute to SEP IRA and traditional IRA in same tax year?

Post by Superorb » Thu Apr 20, 2017 2:35 pm

Spirit Rider wrote: Did you have a true Sep IRA account? If so, there are no employee contributions to a SEP IRA. By default, contributions to a SEP IRA are employer contributions. A custodian can allow traditional IRA contributions to a SEP IRA, but they must be made by specific designation.

If you attempted to make your SEP IRA contributions to an existing traditional IRA account, the behavior you described would occur.
Yes, it is a SEP account, that's the title in my account. It's in the same login as my ordinary IRA. But this makes sense, because I'd have to go to the other website to contribute as an employer. I'll call them and see if they can post date the contribution. There should be no ability to transfer funds into the SEP from that account; I don't know why they allow it but then let it fail.

jalbert
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Re: Contribute to SEP IRA and traditional IRA in same tax year?

Post by jalbert » Thu Apr 20, 2017 2:48 pm

From the IRS SEP Plan FAQ:
If the SEP-IRA permits non-SEP contributions, you can make regular IRA contributions (including IRA catch-up contributions if you are age 50 and older) to your SEP-IRA, up to the maximum annual limit. However, the amount of the regular IRA contribution that you can deduct on your income tax return may be reduced or eliminated due to your participation in the SEP plan.
Risk is not a guarantor of return.

Superorb
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Re: Contribute to SEP IRA and traditional IRA in same tax year?

Post by Superorb » Thu Apr 20, 2017 2:50 pm

jalbert wrote:From the IRS SEP Plan FAQ:
If the SEP-IRA permits non-SEP contributions, you can make regular IRA contributions (including IRA catch-up contributions if you are age 50 and older) to your SEP-IRA, up to the maximum annual limit. However, the amount of the regular IRA contribution that you can deduct on your income tax return may be reduced or eliminated due to your participation in the SEP plan.
I don't think mine allows non-SEP contributions since the transfer failed for me. That or I can only do employee contributions and it failed b/c I already did $5,500 for my traditional IRA already.

Superorb
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Re: Contribute to SEP IRA and traditional IRA in same tax year?

Post by Superorb » Thu Apr 20, 2017 3:16 pm

So I called and they allowed me to make a contribution for prior year as an employer, but it won't post till probably Tuesday. I wonder if there's any way to backdate that transfer. I'll have to ask them again once it posts I suppose.

Spirit Rider
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Re: Contribute to SEP IRA and traditional IRA in same tax year?

Post by Spirit Rider » Thu Apr 20, 2017 4:49 pm

It seems like they should. you took an action that any reasonable person would to make a compliant 2016 SEP IRA contribution by the tax filing deadline. It was their weird system that rejected you.

A point to consider. Traditional and Roth IRAs contributions are reported for the tax year they are for. SEP IRA contributions are reported in the year they occur regardless of the tax year they are for. So even if you were to have initiated a SEP IRA contribution late on 4/18/17 it would have been probably recorded as deposited on 4/19/17 at the earliest.

ML does not report what tax year this contribution is for. What determines the tax year of the contribution is the tax year of the deduction. It may be an aggressive stance, but you did initiate this transfer on 04/17/17 and through no reasonable fault of your own, the custodian caused this delay.

IANAL or tax professional of any kind and this should not be considered advice of any kind. I know what I would do if this was me in this situation.

Superorb
Posts: 79
Joined: Thu Apr 13, 2017 6:33 pm

Re: Contribute to SEP IRA and traditional IRA in same tax year?

Post by Superorb » Thu Apr 20, 2017 5:12 pm

The guy I talked to was just a tech guy for the website, so I have no idea what will happen come next week when the transfer posts to my SEP or what the IRS will think. I don't know where to go from here so I wait. I appreciate the help, and I understand everything found online is not from a lawyer, tax professional, etc ;)

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