Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: I have a client who wants to contribute to both a Simplified Employee Pension (SEP) IRA and a regular traditional IRA in the same year.  Is that OK?

Answer: Yes, subject to normal limits.

Under a SEP, an employer makes contributions to a traditional IRA set up by or for each eligible employee. That IRA is owned and controlled by the employee, and the employer makes contributions to the financial institution where the IRA is maintained.  An employer’s SEP contribution into the participant’s IRA is treated like a pension plan contribution from the employer—even where the participant is the owner of the company.

Regular IRA contributions can be made by the participant to his or her traditional IRA, up to the maximum annual limit.  For 2011, the maximum IRA contribution is $5,000 if under age 50 and $6,000 if 50 or over. However, the amount of the regular IRA contribution that can be deducted on the employee’s income tax return may be reduced or eliminated due to the fact that the employee is an active participant in a pension plan.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.