Can my business have a SEP IRA when I still contribute to another company's 401k?

I recently started a side business and may actually double my income. I have currently been funding my 401k the max 20% but will only save about $8000 a year. Can I start a SEP IRA for my business and invest the other $7000 or is there a limit on my many plans I can take part in?

Yes, you can contribute to the employer sponsored 401(k) plan and have a seperate SEP IRA for the side business. The 401(k) is reported to the IRS on form W-2 as a 402(g) salary deferral from wages. Defined under code section 402(g)(1) Elective Deferrals and are are limited to $15,500 for 2007.

The SEP IRA is taken as a deduction from the side business. The IRS has a combined limit called 415 in which all plans may not exceed. The combined 415 limit for 2007 under code section is 415(c)(1)(A) is $45,000. This limit is adjusted each year for cola.

Please see IRS chart to link provided.

re: Seif970's answer...I suggest being very very careful taking suggestions about what kind of fund or specific investment to make without them knowing how old you are, your time horizon, risk tolerance, other investments owned and other financial needs. Report It

Yes, you certainly can have a SEP IRA and still contribute to your 401k. Timothy111 answers the question very well. I would recommend putting your SEP into a precious metals IRA. For more info go to www.goldira.com They helped me get my IRA started.

You can defer $15,500 for 2007 and then you can have contributed on your behalf any amount. The number of plans that it takes to achieve this is irrelevent. However, total contributions can't exceed the Defined Contribution Limit of $45,000. Additionally can't exceed 100% of your income. Last cap is that your SEP can't exceed 20% of your side business income.

But, I'm wondering why you say there is a max of 20% in your company 401k. Back in 2001, Congress passed a law called EGTRRA. Basically this law allowed people to defer and have contributed up to 100% of their income (cap of $45,000 for 2007) Additionally, they removed the deferrals from a company's deductible contribution amount. I'm guessing that your plan amended for EGTRRA but obviously the message isn't getting to the employees. Most companies changed their deferral limits to 90-100% or "as much as the law will allow". Check with your HR to see if it has been amended. Law was changed to allow dual income households where one spouse didn't have a 401k to put away more. Side benefit came to people like you...dual incomes for individuals.

If your company's plan has decent funds then I would consider maxing out that plan (If they haven't amended, ask them to. It's minimal extra work for them.). Many 401k's have institutional pricing on their funds. You can't match that pricing in your SEP. Then, to maximize your retirement savings, put $15,500 into your company plan for 2007 and then put 20% of your side business' income into the SEP. Total contribution for you will be about $23,500+any company match (I assume there is a match as they limited you to 20%, not 25%).