I have a money purchase plan (Old plan) which I contribute 8% of my salary. I Also have a SEP which I have been contributing 5% . I would like to raise the limits on the SEP , Is this allowed by law?

The total combined contribution amount between the two plans is 25% of your net compensation, to a maximum of $44,000. If you are incorporated, this is 25% of your W-2. However, if you are a sole proprietor, this is 25% of your compensation after the plan contribution has been made (20% of your gross net profits).

For example if your net profit is $100,000 (after subtracting out 1/2 the self-employment tax), your maximum contribution between both plans would be $20,000. This is 20% of the net profit of $100,000 but 25% of of your net after contribution ($80,000).

Your contribution to your money purchase plan would be $6,400 (8.0% of $80,000) and would leave $13,600 that could be contributed to your SEP, assuming the SEP does not have a specified contribution limit.

You may want to consider terminating the money purchase plan since it provides you with no added benefit. The maximum contribution to a SEP or profit sharing plan is 25% of compensation, the same limit that applies to your combined plans. Having one plan will significantly ease your adminstrative load.

Depending on your compensation level and age, you may want to consider a 401(k) plan, which could possibly increase your contributions above the current levels.

why not replace the MP and SEP plans with a 401k plan which will permit not only loans but pre tax contributions of up to 15k plus discretionary contributions of up to 20/25% of comp? Roll the SEP/MP accumulations into the k plan and have the same amount of reporting. Max contribution on $100k comp could be 35 k (20 to PS and 15k to 401k.)