IRA and SEP Contribution

[ponstad]

Though a SEP contribution and a traditional IRA contribution is permiitted for the same taxpayer, the program doesn't allow this.  Anybody have any insight?

[rbynaker]

A SEP is an employer plan so the deductibility of an IRA contribution would depend on the AGI.  If it's not deductible the system should generate Form 8606-T or -S.

[ponstad]

Thanks for the response.  It's a self-employed person with $25K of income.  Wife had a W-2 of $4K with no retirement plan.  They are both over 72, but that shouldn't matter.  Shouldn't both the SEP and Traditional be allowable.  If I put the SEP in, it disallows the Traditional.  Doesn't seem right.

[Just-Lisa-Now-]

Scroll down the IRA contributions worksheet to see the calculation, maybe that will help it make sense?

[barrysafeer]

I see the same issue for one of my clients.  They should be allowed to contribute to both Traditional IRA and SEP IRA.  But adding the SEP IRA makes the check box for "covered by a retirement plan" active.

Did you figure this out?

[rbynaker]

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@barrysafeer wrote:

I see the same issue for one of my clients.  They should be allowed to contribute to both Traditional IRA and SEP IRA.  But adding the SEP IRA makes the check box for "covered by a retirement plan" active.

Did you figure this out?

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I think you're confusing "allowed to contribute" and "eligible for a tax deduction."

[barrysafeer]

Ahh.  So you can always contribute to both but both aren't tax deductible.  Got it.  Thanks.

[abctax55]

They both *could* be deductible; it depends on the income level.

Marking the SEP box means "covered by an employer" retirement plan (yeah, I know it's a Sch C...but that's the same thing in IRS speak). 

When covered by an employer plan, contributions to IRA's may be limited or even eliminated.

YOU need to run numbers both ways to determine the largest benefit.  Sometimes forgoing the SEP to be able to contribute the max to a Traditional IRA is the best option.