Thomas Healy wrote:

- quote -

I would also recommend, provided that the individual may
contribute to the IRA on his own. Remember, his employer
contributes 25% of salary, and then he separately may
contribute to the IRA used by the SEP. If he separately
qualifies.

ChEAr$,
Harlan Lunsford

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"best_scrivener[at]yahoo.com" <best_scrivener[at]yahoo.com> wrote:

- quote -

Why? Ever see elective deferrals in a SEP?

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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"Thomas Healy" <tomhealycpa[at]earthlink.net> wrote:

- quote -

While I would agree with you on what carries authority, I'm
not sure the regulation is correct. If nothing else, a SEP
is not a self-contributory plan like the others. In other
words, you cannot make elective deferral contributions to a
SEP like the others, unless this is the rare instance in
which you happen to have a SAR-SEP.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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"MTW" <mtwingcpa[at]yahoo.com> wrote:
- quote -

Thanks for the input from you and the others; I'll have to
amend some 2003-2004 returns (including mine).

--
Tom Healy, CPA
Boulder, CO
Web: http://www.tomhealycpa.com

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It seems odd that the instructions would say that SEP's
cannot qualify for catch up contributions.

It seems to me that it is authorized under IRC Sec. 414(v)
Catch-up contributions for individuals age 50 or over...

1) In general An applicable employer plan shall not be
treated as failing to meet any requirement of this title
solely because the plan permits an eligible participant to
make additional elective deferrals in any plan year.

(B) Applicable dollar amount

For purposes of this paragraph -

(i) In the case of an applicable employer plan other
than a plan described in section 401(k)(11) or
408(p), the applicable dollar amount shall be
determined in accordance with the following table:

For taxable years The applicable

beginning in: dollar amount is:

2002 $1,000
2003 $2,000
2004 $3,000
2005 $4,000
2006 and thereafter $5,000.

Jennifer

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Thomas Healy wrote:

- quote -

I looked into this a couple of years ago for a client and
concluded that SEPs could only accept catch-up contributions
in the form of elective deferrals by the employee. So, if
you have one of those older SARSEP plans, then "yes."
Otherwise, "no."

MTW

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Thomas Healy wrote:

- quote -

If they've got a SAR-SEP, I think catch ups may be
allowable. The catchup is an employee deferral, so if you
have a regular SEP (which doesn't allow employee deferrals),
there's no catch up.

Phoebe

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"Thomas Healy" <tomhealycpa[at]earthlink.net> wrote:

- quote -

This is a really tricky question. Some SEP-IRA's have been
designed to allow *employees* to make "elective deferrals",
and in this case the SEP's have catch-up rules like the
other "applicable employer plans". But what about the
self-employed proprietor or partner? Are they "catch-up
eligible participants" who can make "elective deferrals"?

Code Sec. 414(v)(6)(B) defines "elective deferrals" by
reference to Sec. 414(u)(2)(C), which sends us to Sec.
402(g)(3) [with a modification for some Sec. 457 government
plans]. Sec. 402(g)(3) says "elective deferrals" include
employer contributions under Secs. 401(k), 403(b) and 408(p)
[SIMPLEs], as well as contributions not included in income
under Sec. 402(h)(1)(B), which sends us to Sec. 408(k)(6),
which provides the cash-or-deferred rules for SEP-IRA's, the
so-called "SAR-SEP", which was phased out in 1997. So it
looks like no "elective deferrals" for the self-employed
under a SEP unless it's a SARSEP left over from the 1990's.

Whew! Are we there yet? "A beginner gets lost quickly, while
an expert gets lost slowly." Turning to Sec. 408(k)(7) we
learn, by cross-reference to Sec. 401(c)(1), that "employee"
includes a self-employed person who has "compensation",
defined in Sec. 414(s), which sends us to Sec. 415(c)(3) and
its special rules for the self-employed, which take us back
to Sec. 401(c)(2), i.e. earned income from self-employment,
after subtracting the deferred comp itself per Sec. 404.
[Like the way we figure a self employed person's SEP
contribution. It's 25% of {earned income minus the SEP
contribution itself}, which necessitates solving for X = 20%
of pre-SEP earned income. Or something like that.]

So, putting it all together, it seems that the Regs. are
right, in that SEP's are an "applicable employer plan", and
the FAQ is right, in that very few SEP's -- and no new ones
-- allow "elective deferrals". So most SEP participants over
age 50 can't use the $4,000 catch up that folks in some
other employer plans get this year under Regs.1.414(v)-1(c),
but have to settle for the lousy $500 boost that applies to
IRA's generally.

Bob Daniels ("Madness! Madness! - 'G)

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I've come across an IRS website FAQ
http://www.irs.gov/retirement/articl...419,00.html#16 which states:

-----
Can catch-up contributions be made to a SEP?

No. SEPs are funded by employer contributions only. However,
catch-up contributions can be made to the IRAs that hold the
SEP contributions if the SEP-IRA documents allow. The
catch-up IRA contribution amount (for employees age 50 and
older) is $500 for 2004 and 2005, increasing to $1,000 for
2006 and later years.

-----
But Internal Rev. Reg 1.414(v)-1(g)(1) defines an Applicable
Employer Plan to include:

-----
The term applicable employer plan means
a section 401(k) plan, a SIMPLE IRA plan as defined in
section 408(p), a simplified employee pension plan as
defined in section 408(k) (SEP), a plan or contract
that satisfies the requirements of section 403(b), or a
section 457 eligible governmental plan.

-----
This does not appear to single out SEPs for different
treatment than other employee plans.

I would tend to rate the regs as having greater authority
than website FAQs. So I would continue to recommend catch up
contributions to my over age 50 clients with SEPs. Am I
wrong? If so, I would appreciate a pointer.

--
Tom Healy, CPA
Boulder, CO
Web: http://www.tomhealycpa.com

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