Is it permissable to contribute to botha simple plan and a SEP plan in the same year? My wife received a bonus in January with which she contributed the yearly contribution limit to her Simple Plan. Now she is leaving that company and starting her own, so she is going to set up a SEP for herself. Will she be limited in what she can contribute to her new plan?

Thanks,

An employer can't sponsor a SIMPLE and another plan during the same year, but as I understand it, your wife was an employee in a company that had a SIMPLE and she contributed to it. She can also contribute to a SEP if she has her own business...actually, it is her business that is making a contribution on her behalf.

I agree with Bird. Also, her contributions to the SIMPLE will not affect the amount she is allowed to contribute to her SEP..which means she can contribute to maximum amount to both.

She is leaving the first company where she was an employee, and starting her own separate business. So, with her new buisness, she will be able to put aside 25% of her earnings? What constitues her earnings?

What does ASPA TEchincal tip 71 say....

If she is self employed, the max deduction is 20% of net earnings from self employment ( Schedule C income) reduced by 1/2 of the SECA tax paid. If she incorporates her deduction is 25% of w-2 comp.

Ahh, the contributions and the self employment deduction are excluded from income? So,
(.25NET + NET = GROSS(1-.0675))
& (NET= GROSS.9235/1.25)
& (.25NET = CONTB = .25*.9235/1.25 GROSS)?

That would mean the contribution is roughly 18.47% of your gross earnings. I'll have to check the Self Employment rate (15.3%?)